EMC Sees Stabilization as Data Domain Merger Closes
EMC (NYSE: EMC) this morning posted better than expected quarterly results and said it expects to do even better with the acquisition of Data Domain (NASDAQ: DDUP), which is expected to close today.
EMC's second-quarter sales were down 11.3 percent to $3.26 billion, but that was $60 million better than analysts expected. The data storage giant's pro forma earnings of 18 cents a share were two cents better than the Thomson Reuters consensus, and EMC's full-year forecast of $13.8 billion in revenues was ahead of Wall Street expectations even after accounting for a $200 million contribution from Data Domain.
EMC generated $400 million in free cash flow and ended the quarter with $10 billion in cash and investments $2.1 billion of which will be used to acquire Data Domain.
EMC CFO David Goulden and CEO Joe Tucci said on a conference call that IT spending stabilized and became more predictable in the second quarter, albeit at a "much lower level" than in recent years. Still, the company expects the second half of the year to be stronger.
Data Domain's sales were up a better than expected 40 percent to nearly $86 million in the quarter, showing why the company was so coveted by EMC and rival NetApp (NASDAQ: NTAP). EMC won the right to acquire the data deduplication specialist after a six-week bidding war (see What's Next for EMC, NetApp and Quantum?).
EMC said it expects more than $1 billion in sales next year from its Data Domain and Avamar dedupe product lines but the company's press release or conference call didn't mention EMC's dedupe partnership with Quantum (NYSE: QTM). EMC's only public comments on the issue have been that it plans to continue to offer Quantum dedupe systems, and an EMC spokesperson said the company's plans haven't changed.
EMC said it experienced "strong sequential growth" in its Clariion and Celerra storage systems, backup and recovery software, RSA information security solutions and EMC Global Services.
Tucci said on the call that EMC's new high-end Symmetrix V-Max "slightly beat" the company's sales plan, and said the systems will get "FAST" technology later this year, short for fully automated storage tiering.
Solid state drive (SSD) shipments were also strong, a trend that has driven shares of SSD maker STEC (NASDAQ: STEC) sky-high this year (see Solid State Drive Developers Try to Catch STEC). Goulden said the company has shipped more than a petabyte of SSDs so far this year.
Tucci noted one hopeful sign that could boost hardware sales at some point: utilization rates are at an all-time high, suggesting that users will need more storage capacity at some point.
Asked by an analyst on the call if he expects this year's merger mania to continue, Tucci said, "I think it's going to continue as an industry trend."
Asked if EMC plans other acquisitions, Tucci replied that there is "nothing major that we have to have," but he said the company might consider an acquisition "in the case where it can drive a lot of shareholder value."
VMware (NYSE: VMW), which is majority-owned by EMC, contributed better than expected second-quarter revenue of $455 million.
EMC shares were up 6 percent at the NYSE open this morning, while VMware shares gained 8 percent.
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