Pay More Tax and Retire at 70

The last time I felt overwhelmed by big numbers was when UK's Chancellor of the Exchequer Alastair Darling made his last budget announcement, and he declared that there was a borrowing requirement of some 175 billion for the public sector economy. That's an eye-wateringly large number, much, much larger than any previous government's borrowing requirement.

As Senator Everett Dirkson once noted, "A billion here, a billion there, pretty soon it adds up to real money." We're in real money territory now.

And we (at least us poor unfortunates resident in the UK) will be paying for this debt for years; some estimate until 2020 or beyond. Others reckon the debt is so large, it needs higher taxes now and we'll not be retiring until we're much older.

If you live in the UK, Darling's budget means you've no choice. Pay more tax and plan on retiring at 70. Either that, or it's emigrate somewhere a little less financially punishing.

EMC have exactly the same attitude to budgeting as the UK government.

In his latest blog on the Symmetrix V-Max, Chuck Hollis is in big numbers mood, Dirkson- and Darling-sized big numbers. Go take a look and report back here on how you feel. I was surprised -- nay, shocked, I tell you -- at the bazillions of zeroes required to tell us what EMC did in developing the V-Max.

Having your eyeballs seared by all these digits makes it difficult to get at the detail, but one number did catch my eye, because Chuck beats on it. The amount of money spent on developing the V-Max.

A cool $200 million in staff costs alone, never mind the 1.5 acres of air conditioned machine room, or the 135,000 disks, or the total electrical output of a small country  required to bring this project to fruition. I suspect the real costs were nearer $400 or even $500 million if that's the staffing figure alone.

Gadzooks, but that's a lot of money. So who pays? 

The sales of the Symmetrix DMX have been on a steep downward trajectory for some time. That's because consumers aren't buying it in the same volumes because they don't have the need (their business has shrunk) or the money isn't there (they used to be a bank). The lack of growth is generally true of the entire IT industry, but the "big iron" has taken more than it's fair share of the beating. And the V-Max is big iron -- just look at all those numbers!

So my bet is on anyone that buys anything from EMC -- CLARiiON, Celerra, Centera, DMX, or even V-Max, Documentum, RSA, maintenance, support etc -- will pay the premium of getting EMC some of their money back, given EMC's less than stellar financial performance recently. Because the C in EMC doesn't stand for Charity, that's for sure. And the E doesn't look like it stands for Economical.

If you bought into EMC, the V-Max budget means you've no choice. Pay more tax and plan on retiring at 70. Either that, or you might want to consider migrating to something a little less financially punishing.

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Comments

[Chuck Hollis]

Actually, Alex, we sell so darn many storage arrays that we make it up on volume!

-- Chuck

[Alex McDonald]

Really? I'd be fascinated to see how that works, and how you're going to make up $400-500 million of V-Tax on volume.

[John F.]

Hmm

That's like the entrepreneur who, for every dollar's worth of product sold, brought in 99 cents. Said he'd make it up on volume. Somehow I don't think the maths works out too well...

I get the "EMC is big, really really big" and "EMC spent big money, really really big money" parts, but I don't see how that's relevant. As any investor has learned over the past year:

1. There is little correlation between the size of the investment and the size of the return.

2. The bigger they are, the faster and more spectacularly they fall. Unless they're deemed to big to fail that is, then the government bails them out and the taxpayer is left holding the bag.

Good luck Chuck

John

[James]

I wonder if we can take from this that NetApp won't be investing in the same level of testing in their future product releases - they seem to be saying that they need to keep their prices down and profits up. Alex - I think your comment "given EMC's less than stellar financial performance recently" is a little dangerous especially from an organisation that made a $75m loss last quarter. If EMC's performance has been "less than stellar" albeit in profit, I wonder how you define NetApps performance. Good luck with your upcoming year end results - we await with interest.

[Chuck Hollis]

Hi Alex

As I responded on my blog, I think your logic is a tad flawed.

You're implying customers won't receive value from all that R+D investment.

Doesn't seem to be the case so far ...

You're also implying that it's OK to skimp on development, qualification, testing, etc. of new products.

I agree with James -- it's something that everyone should keep in mind when thinking about newer NetApp products.

But now you've got me thinking about big sums of money thrown away -- I forget -- how much did NetApp pay for Spinnaker?

Correct me if I'm wrong, but wasn't in the hundreds of millions of dollars?

And, speaking of acquisitions, how much was Topio?

Neither with much to show in the way of revenue ...

Now that, Alex, is really expensive!

-- Chuck

[Alex McDonald]

@james

Thanks for posting.

Over the 15+ years that ONTAP has been out, I suspect -- and I'm not going to trawl through years and years of NTAP financials to verify it -- that NetApp has spent more on research, development and testing than EMC spent on V-Max.

Also see my reply to Chuck (below, will be posted shortly).

My comment on EMC's less than stellar results is telling it like it is. How that might be dangerous is beyond me. If NetApp's turn out to be "less than stellar", then, by all means, you should blog on it. I'm not an insider, btw; I really don't have a clue what the numbers will be.

Keeping prices down and profits up seems like a reasonable business strategy to me. Does EMC operate with an different business model?

[Alex McDonald]

@chuck

Topio wasn't so great. Yes, we gained some clients, some revenue and some technology, but going forward, I think NetApp took the right decision that it didn't make financial sense to keep investing in it. Some you win, some you lose.

As to Spinnaker, that was an investment in technology that is paying dividends already (ONTAP GX) and will play a much larger part of ONTAP going forward. That's one where we invested well.

The amount you spent on V-Max -- what is effectively a commodity hardware system -- is, frankly, obscene. The reason you felt compelled to spend these mountains of cash is the fragmented nature of EMC's storage systems.

• Centera. How much development is this platform going to get now that the Belgian development site is closed?
• CLARiiON. Some hardware changes, but the software stack is stuck in the "Real LUNs" mindset. How much investment did this one get?
• Celerra. Some changes in the last few years, but the platform especially the software) is in desperate need of an upgrade. Bolting bits on to the FrankenNas doesn't seem to me like a route forward; the suggestion that it's the foundation of a "unified storage system" is laughable. How much investment did this one get?
• Atmos. Yet another technology, this time focussed on cloud. How much investment did this one get?
• V-Max. Huge amounts of investment, that we do know. And for a system that's based on commodity hardware, the software must have taken the lion's share.

Yes, some of the V-Max R&D will leak over into the other products eventually. But what suffered in the other product lines while all this was going on?

If the answer is "nothing suffered", then the total development, qualification, testing bill for EMC must be very large indeed.

Or, as I suspect is the case, each product line got less than what NetApp spend on Data ONTAP.  Effectively, EMC are operating as a big umbrella company with 5 or more small and independent storage subsidiaries. Some of them would appear to be smaller than 3Par.

PS. When is FAST out? Or are you indulging in a little bad marketing?

[James]

Alex, what has the amount of R&D that NetApp has done over a 15 year period on a single product got to do with anything. It's a meaningless comparison and I don't see the point you are trying to make.

Interestingly, the amount of testing that a vendor does on a single release has nothing to do with the size of the product - but more on what that product is expected to do. V-Max will support some of the most critical operations of some of the worlds largest organizations. These operations rely on the fact that EMC releases stable, reliable, available product. When NetApp start to address the same market that we do, the value of rigorous testing will become apparent. Until then, I guess it is hard to see the value.

As for commenting on your competitors financial performance - the reason it is dangerous is because it is so easy to get egg on your face - would you like a napkin?

[Alex McDonald]

James

If I were you, I'd ask Chuck for an explanation why he blogged on what he thought it was an important comparison. I can't help you if you don't (or won't) understand why you needed to make this huge and time-concentrated investment.

Thanks for clarifying the target market for the V-Max. I'm sure they'll be delighted to know that version 1 of the V-Max was tested with such rigour.

Getting egg on my face is the least of my concerns! I'd rather comment than be silent and let EMC do all the bragging. But perhaps that's what you want.

[Paul P]

Talking of egg on face, Is this the same James Sillence over at this blog that was embarrassed by a customer rebuttal: http://www.itnews.com.au/News/100431,netapp-backs-storage-guarantee-with-1m-offer.aspx

[James]

Ah, I get it now Alex. You don't like EMC bragging about an amazing piece of engineering so this is a "spoiler" post.

It sort of explains your tenuous position and "flip-flop". The post criticizes EMC for the amount of investment they made in V-Max. You next try and assert that NetApp spend just as much if not more on ONTAP - somehow that's ok. You then go back to your "it's not ok" routine and call EMC's investment obscene. I'm confused.

So, it's ok for NetApp to invest in R&D but somehow, it's not ok for EMC?

That's the problem with spoiler posts - they just end up as noise.

[Alex McDonald]

James

Chuck's post was willy waving on the subject of how much was spent and how fast it was spent.

If it had been about V-Max engineering, and how it was done and and what problems you fixed along the way and what the testing showed and how the money was spent doing this and that, and how this benefited EMC customers, you'd have a point.

It wasn't, so you don't.

[Nigel]

Alex,

As an HDS specialist (I dont work HDS, Hitachi, HP..... or EMC for that matter) I am impressed with, and a little jealous of the V-Max. I half wonder whether Hitachi will be able to keep pace considering the current economic climate et al.

In the type of work I do, high end storage for mission critical systems, I see Hitachi storage up against EMC all the time, with the occasional mention of IBM. Rarely, if ever, is NetApp brought to the table (Im not trying to dis NetApp). One of the reasons Hitachi and EMC are the platforms of choice is precisely the point being debated - their kit is seen to be the "best", most feature rich, and most reliable. That reputation doesn't come by cutting corners with R&D, testing.......
If EMC had scrimped and developed the V-Max on a shoe-string, so to speak, then it would never even be considered by the companies that I do work for.

I also keep hearing people say that fortune favours the brave etc during economic downturns, and that those who invest during these times usually come out stronger than those who pull their investment budgets..... Im not old enough to know how true this is but I see the principle behind the notion.

BTW Im not sure it works the same for governments, who, by design, dont/shouldnt really be revenue generating machines.

I for one hope that Hitachi are investing similar amounts in their storage line otherwise I might end up being a specialist in a line of technology that finds itself lagging a long way behind.

Just my penny's worth.

[Alex McDonald]

Nigel, you make a good set of points.

But I keep coming back to the EMC storage model, and the investment "lumps" that it demands as a consequence.

NetApp don't skimp on development testing or any of the other things that is required from a highly reliable and feature rich storage platform. We spend consistently and evenly year over year on R&D.

Complexity is the enemy they're trying to kill by spending their way out of it. $400m or even more on one stroage technology out of the five or so storage platforms that EMC have, spent in the space of 2 years or less, is the result.

We just don't have that issue.

And as for the Government? Roll on the election...

[Sharon]

Pardon, but this is a ridiculous mind-set Alex.
I just don't get it, why would you care how much EMC spent on R&D. unlike your government, customers CHOOSE to buy EMC regardless of it's investment prefernces. and yes they can CHOOSE NetApp but for some reason sales numbers show otherwise.
So please focus on the technology offerings and the advantage that EMC shows.

[Alex McDonald]

Hello Sharon of EMC, you may be right; R&D expenditure isn't my speciality, that I'll admit.

I don't think I'll be focusing "on the technology offerings and the advantage that EMC shows" though!

[RBD]

I've been reading this back and forth between our companies for some time. (Full Disclosure I'm an EMC sales rep)and I have friends that work for NetApp. What I'm confused about is why NetApp is even in this conversation around V-Max. You don't compete in this space and your sales people will even say that to customers. "We want tiers 2-5" Is the recent pitch that I've heard and a sales strategy that is being taught to EMC deffectors you are consistently recruiting. Secondly, related to FAS many of my customers and prospects for the first time in my 5 year career have evaluated NetApp (Used to be just HP EVA or IBM) when in the past they wouldn't have. Looks like brand awareness is paying off, but 9 times out of 10 you lose that battle too? In the mid-tier (500-5000 users) space where I am 19 out of 20 SANS I sell are directly related to I/Op sizing and have little to do with capacity. The customer base is coming around on this and in many RFP's I get the I/Op requirement is directly next to the capacity requirement so that each vendor can design the array appropriately for the customer's unique environment. NetApp's response is "We have De-Dupe. Customer says irrelevant because I need 1000 i/ops and 600 gigs of space?" Don't get me wrong you have a great product and are my only REAL competitor in my space, (Mid Tier / Not Symmetrix) but this back and forth bashing related to DMX or V-Max is an exercise in futility until you can bring to market a competitive product that is considered in the high end. Spend your time bashing Clariion and Celerra it won't make you appear as out of touch with reality and might help your sales guys win 2 or 3 out of 10 deals going forward.