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Analyst: EMC Can Rebound

There's no way around it, EMC quarterly results, released earlier this week, were poor.

The Hopkinton, Mass., data storage giant posted a net loss of nearly $1 billion and will cut another 1,600 jobs in response to a sickly economy made worse by the Sept. 11 terrorist attacks.

Other factors include price competition from IBM and Hitachi and a failure by managers to judge the depth and duration of the IT spending slowdown.

"We are mad at ourselves that we slipped in execution in Q3," CEO Joe Tucci said.

While the numbers disappointed EMC executives, shareholders and Wall Street, Goldman Sachs & Co. (GS) is making a case for cautious optimism.

"There is a small but vocal investor group that seems to be concluding that EMC will be unable to resurrect its growth and thrive again. We disagree," the investment firm wrote in a note to clients.

GS cites several reasons for its stance, one of the most important being cost-cutting. In addition to job cuts , EMC is embracing outsourcing, streamlining testing processes and expanding enterprise resource planning use. The moves will slash $800 million a year from the operating budget.

EMC will also likely increase focus on mid and lower level storage systems. As the economic slowdown drags on, customers are more price-conscious and have also curtailed large orders, a trend benefiting EMC's rivals.

To address the market, EMC will realign its Clariion product line to focus on fewer, but more strategic partners. GS still believes a reseller deal with Dell , or a similar company with a large distribution base, makes sense. EMC will also push its new lower end Symms system.

"These moves should enable EMC to take better advantage of this shift, and we expect midrange storage to grow from around 10 percent of EMC's current business to 15 to 20 percent within a couple of years," GS wrote.

Another EMC strong point is software, which has been developed in-house and through acquisitions. The company likely has a lead in developing storage management software that works across systems from different vendors. EMC is schedule to kick off the initiative with a product announcement Oct. 29.

Finally, EMC customers, "seem convinced that EMC has the broadest and most mature software portfolio and the most integrated solution," GS said, making it "fairly difficult to displace" them.

Shares of EMC were off 0.12, or 1 percent, to 11.12 in afternoon trading Friday. In the last 52 weeks, the issue has touched 100.