(EMC) EMC Opens New Durham, North Carolina Datacenter

EMC Corp. (EMC) recently announced that it has opened a new datacenter in Durham, North Carolina. The 450,000 square foot Center of Excellence (COE) is EMC’s seventh datacenter and the first one in the US. The other six COE’s are located in India, China, Egypt, Israel, Ireland and Russia.

The new COE will extend EMC’s private cloud and will support more than 50,000 users across 400 corporate offices in more than 80 countries. In addition to the data center, the COE includes 130,000 square feet of space for research and development labs. COEs perform essential services for EMC business units, including engineering and research and development, customer service, translation services, IT and technical support, and customer executive briefings.

The new COE has been designed to operate as a tier 3 datacenter. Datacenters all over the world are graded between Tiers 1 and 4 based on the standardized methodology used to define their uptime. A tier 3 data center comprises dual-powered equipment and multiple uplinks and guarantees 99.982% data availability from the hardware. A tier 3 datacenter is considered more robust and less prone to failures than tier 1 and 2.

The energy efficient datacenter has rainwater harvesting facility, free air cooling for majority of the year, and flywheel technology, which eliminates the need for battery storage in the uninterrupted power supply systems. The datacenter has the ability to host approximately 350 applications and six petabytes (6 PB) of data.

We believe the new datacenter will ensure the company’s smoother transition to the Cloud. The shift will enable EMC to provide improved services at reduced costs. Moreover, EMC’s shift to the cloud will boost its innovative abilities, thereby providing a competitive edge over its peers.

As of August 31, 2011, EMC had virtualized 75.0% of its data center and realized 75.0% in storage and a 170.0% improvement in storage administration productivity. At the end of 2010, EMC’s transition to the cloud helped the company to save $121.5 million, including $94.3 million in capital equipment cost and $27.2 million in operating cost reduction due to data center power, cooling and space efficiencies.

Our Take

With the increasing spending on IT and rapid growth of virtualization and cloud computing, huge data centers have become a necessity in the global IT environment. Worldwide IT spending is expected to total $3.67 trillion in 2011, a 7.1% increase from $3.43 trillion in 2010, according to the latest outlook from Gartner. Spending on public cloud services are expected to grow at a compounded annual growth rate of 19% for the 2010-2015 period.

According to market research firm Infonetics, North American enterprises plan to increase their data center infrastructure spending by roughly 25% in 2011.

We believe the increasing adoption of cloud-based technology will be a key growth driver for EMC. EMC has invested $40.0 million in the cloud infrastructure business and expects to grow from its cloud-computing initiatives. Moreover, new products and cloud-computing initiatives are expected to drive revenue growth in 2011 and beyond.

Moreover, the strategic alliance with Cisco Systems Inc. (CSCO) and VMware Inc. (VMW) (81.0% ownership) that spans the datacenter and security segments and also caters to the enterprise market will enable EMC to seize new growth opportunities in large, virtualized next-generation datacenters, thereby boosting the company’s next generation virtualization efforts.

However, EMC continues to face aggressive competition in the storage, networking and virtualization space from system vendors such as International Business Machines Corp. (IBM), NetApp Inc. (NTAP), Hewlett-Packard Co. (HPQ), Unisys Corp. (UIS) and Hitachi Data Systems.

Currently, EMC has a Zacks #3 Rank, which translates to a short-term Hold rating. We also maintain our long-term Neutral recommendation on the stock.

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