EMC backpedals from aggressive vertical approach to healthcare market

July 25, 2001

Just months after much-ballyhooed coming out parties at the RSNA and HIMSS meetings, multibillion-dollar data storage provider EMC has pulled the plug on its healthcare vertical group.The company claims it is not turning its back on healthcare; rather,

Just months after much-ballyhooed coming out parties at the RSNA and HIMSS meetings, multibillion-dollar data storage provider EMC has pulled the plug on its healthcare vertical group.

The company claims it is not turning its back on healthcare; rather, the overall negative climate surrounding high-tech firms these days has forced EMC to rethink its approach to several markets, including healthcare.

“The strategy that led to the creation of the healthcare vertical has not changed,” said Brian Hermanspan, global healthcare marketing manager for EMC. “It has become tighter and more focused.”

This “tightening” includes layoffs and a restructuring of the company’s healthcare business. EMC has pulled back from the strategy launched at the RSNA 2000 meeting that was intended to position the company as the major infrastructure provider for healthcare customers via a dedicated sales force. A combination of market dynamics left the firm less than satisfied with its new approach and looking for ways to reduce expenditures.

“We were operating under a certain model for six months and weren’t getting the results we expected,” Hermanspan said. “We had 50 reps and 50 engineers trying to cover 5700 hospitals in the U.S. and 1200 in Canada. How do you do that effectively?”

EMC has opted to refocus its efforts on partnering with established OEMs. The company has had a presence in healthcare for years and claims to have 3600 healthcare installations in the U.S. and Canada. This has been accomplished primarily through partnerships with most of the HIS vendors and a growing number of imaging vendors, including GE, Meditech, Siemens, Philips, Agfa, HBOC, and Emageon. EMC also has investments in Stentor and Amicas as part of second-round financing.

“Our strategy regarding what we want to accomplish in the healthcare space, our strategy of becoming the infrastructure of choice, has not changed,” Hermanspan said. “But what we do to underpin that strategy has.”

The company says financial considerations-not a lack of commitment to healthcare-is the primary catalyst for this shift. Last year’s darling of the investment community saw its net income plunge from $429 million in the second quarter of 2000 to $109 million in the second quarter of this year, prompting the layoff of 1100 employees worldwide. While only about a dozen of these were in the healthcare group, they included some high-profile individuals, such as industry veteran Bill Knight, formerly director of the company’s healthcare solutions media group.

Like many of its compadres and competitors in the high-tech sector, EMC has seen its stock hard hit, tumbling from a high of 104 last October to just 18 on July 18.

And some analysts believe the slide is not over, as competition increases, prices fall, and demand for data storage products remains flat. Even EMC itself is hesitant to make promises about the future. During a conference call on July 18 announcing its second-quarter earnings, company CFO Bill Teuber told analysts that the firm’s ability to forecast has been “significantly impaired.”

Even so, EMC remains optimistic about its position in healthcare. New partnerships and installations are pending, according to Hermanspan, although he declined to disclose any particulars until the agreements are finalized. The firm is also undecided about its presence at this year’s RSNA meeting and the 2002 HIMSS meeting.

“Specific areas for opportunities in healthcare include anything to do with rich content and imaging, led by PACS in both radiology and cardiology,” Hermanspan said. “We consider this the biggest growth area.”