EMC (EMC) is the global leader in the disk storage system market as well as the storage software market. However, the stock has fallen from highs of around $30 during the middle of 2011 to trade Friday at $22.

Even NetApp (NTAP), EMC's only major pureplay storage competitor, saw its stock tumble in the second half of 2011 largely due to concerns of lower government and enterprise spending as the macroeconomic condition deteriorated in the U.S. and Europe.

Our price estimate of $42.15 for EMC is nearly double the market price. We believe that two key drivers of EMC's stock, and our views on those drivers, explain why our price estimate is well ahead of the market price. Below we highlight these drivers in detail.

See our full analysis for EMC

EMC will grow share

Storage software is one of EMC's most profitable businesses and accounts for nearly 30% of our price estimate for the firm. As shown in the chart below, EMC's share in the global software market has increased significantly over the past few years, and we expect this growth to continue for the next few years as the firm maintains its lead in the worldwide disk storage systems market and continues to expand its storage software offerings.

EMC is currently the leader in the global storage software market with a share of 24.5% as of third quarter of 2011, according to research firm IDC.

We currently forecast EMC's market share of storage software to increase from about 25% in 2011 to 28% by the end of the Trefis forecast period. With most of the storage software now being bundled on with the hardware, we expect EMC's storage software market share will at least match the company's leading share in the global disk storage systems market, which according to IDC stood at 28% as of third quarter of 2011, before facing any significant resistance.

Opportunities in data and cloud adoption

In addition to expecting growth in EMC's share in storage software market, there is another reason why we believe storage software is of key importance for the company and that is the market itself is growing at a rapid rate. This is because the storage market is rapidly changing in the age of big data and the cloud, and organizations now require new storage software products and solutions to utilize, manage and protect their valuable corporate data and massive storage resources. (See EMC Unveils Big Data Analytics Platform, $42 Fair Value)

This is good for EMC as it's now able to sell such new products and solutions and, as the market leader, is likely to benefit the most from this new opportunity.

It is also worth noting that in spite of having a lower share in storage software market compared to storage hardware market, EMC derives much more value from the software business primarily due to significantly higher margin associated with it.

Potential downside scenario

Since big data opens new opportunities for storage players, there is also the possibility that competitors like HP (HPQ) and IBM (IBM) or even some new player could up with a winning product or solution that maybe hard to compete with -- probably because it may be proprietary technology.

In such a scenario EMC may find it difficult to grow its share in storage software market and, in the worst case, could even lose share which would result in downside to our $42.15 Trefis price estimate for the company.