EMC (NYSE:EMC), one of the key players in the storage hardware market along with NetApp (NASDAQ:NTAP), is seeing growing demand for its data de-duplication technology. Data Domain and Avamar, EMC’s two key “de-dupe” offerings, have registered more than 100% year-over-year revenue growth in the first quarter of 2010.
We estimate Data Domain, consisting of de-duplication solutions, constitutes about 9% of the $25 Trefis price estimate for EMC’s stock.
Acquired by EMC in July 2009 for $2.1 billion, Data Domain is turning out to be a good investment with revenues having grown every quarter since acquisition. We believe Data Domain will be able to maintain steep revenue growth by leveraging EMC’s dominant position in storage hardware, and become a billion dollar a year business by 2012.
You can modify our forecast above to see the impact on EMC’s stock price if de-duplication hardware and software revenues were not to grow as fast as we forecast.
Below we discuss the value of data de-duplication technology for customers and why data domain revenues are set to grow substantially in the future.
Data De-Duplication Reduces Storage Hardware Requirement Up To 90%
Data de-duplication technology is crucial because it can reduce required data storage space by 90% or more by eliminating repetitions of data. For example, a typical email system might contain 100 instances of the same 1 MB file attachment. In a normal archiving system, 100 instances of this file would require 100 MB of storage space, whereas with de-duplication technology, only a single instance of this 1 MB file is stored, thus a significant amount of storage space is saved.
Data de-duplication technology results in efficient use of storage space, leading to substantial cost savings for businesses purchasing storage hardware.
Data Domain Revenues To Cross $1 Billion In 2012
Although EMC faces competition from other data de-duplication players such as Symantec (NASDAQ:SYMC), NetApp (NASDAQ:NTAP), and Oracle (NASDAQ:ORCL), we believe it will able to grow Data Domain revenues driven by the following two factors:
1. EMC will leverage its storage hardware leadership to push de-dupe sales
According to Gartner, EMC dominated the external controller based disk storage market in 2009 with 25% market share (equivalent to $4.1 billion) ahead of IBM (NYSE:IBM), HP (NYSE:HPQ), Dell (NASDAQ:DELL) and NetApp. EMC can leverage its existing strong relationships with a large number of storage hardware buyers to drive sales of de-duplication technology.
2. Growing demand for VMware’s virtualization software bundled with Data Domain solutions
EMC’s Data Domain de-duplication technology in conjunction with VMware’s virtualization software can help reduce the amount of money businesses spend on hardware.
VMware, which leads the virtualization industry, is likely to be the first choice for enterprises looking for virtualization of their data centers. We believe the demand for VMware virtualization software also benefit sales of Data Domain technology.
Data Domain generated $480 million revenues in 2009 with roughly $400 million coming from its de-duplication software and hardware sales, and the remainder from maintenance and service contracts. We expect Data Domain to become a billion dollar brand for EMC by 2012 with about $900 million generated from product sales alone.
For additional analysis and forecasts, here is our complete model for EMC’s stock.
