EMC's Strong Quarter Overshadowed by VMware
EMC (NYSE: EMC) posted second-quarter results today that beat Wall Street estimates, but turmoil at the company's VMware (NYSE: VMW) subsidiary figured prominently on the company's conference call.
EMC's sales rose 18 percent from the year-ago quarter to $3.67 billion, and net income was up 13 percent to $377.5 million, or 18 cents a share, beating forecasts. It was the company's 20th consecutive quarter of double-digit sales growth.
The storage giant achieved those numbers despite an economic environment that CEO Joe Tucci described as "tough, and it will remain tough for the next several quarters." Every deal is facing greater scrutiny, he said, with a strong emphasis on ROI.
Despite the tough environment, EMC raised its full-year sales forecast to more than $15 billion. Its shares rose 9 percent in morning trading today even as VMware shares fell 7 percent on the server virtualization company's second revenue warning this month.
On the conference call with Wall Street analysts, Tucci offered a spirited defense of VMware and new CEO Paul Maritz and pledged to maintain VMware's independence.
He called VMware's technology "absolutely strategic and game-changing for companies," and said Maritz is "the right person in place at the right time for VMware."
"I have reached out to some of the largest partners and assured them that VMware will remain an independent company that will work openly, evenly and seamlessly with all the interested players in the IT landscape," Tucci said.
He added that EMC has no plans to divest its 85 percent ownership stake in the company.
Analysts pressed Tucci for details on VMware's turnaround plans, but he told them they'll have to wait for the company's analyst day this fall. "We just really need the time and we're going to take that time, and we'll talk to you in the fall," he said.
VMware, he said, is "still on a great track, but we gotta get it back on its almost perfect track."
Symmetrix, Celerra Lead Gains
EMC cited its recent acquisition of Iomega, along with high-end Symmetrix and Celerra NAS sales, for its strong results. Symmetrix sales rose 10 percent, while Celerra sales grew by more than 50 percent once again.
Tucci said in a statement that "Our focus on information infrastructure and virtual infrastructure is paying off and is the driving force behind our strong financial position, our successful business model and our competitive advantage."
U.S. sales rose 10 percent, while revenues elsewhere grew 27 percent. Information Storage revenues reached $2.87 billion, an increase of 14 percent. Solid state flash drives (SSDs), virtual provisioning and data de-duplication technologies also boosted results, the company said.
Content Management and Archiving grew 18 percent to $204 million, and RSA security sales rose 15 percent to $144 million. VMware revenues climbed 52 percent to $453 million, but the company lowered its full-year sales growth projection to 42 percent to 45 percent.
"We do not believe that revenue misses at VMW has much to do with competition from [Microsoft Hyper-V]," wrote Pacific Growth Equities analyst Kaushik Roy. "We do however believe that the estimates for market size and the near-term growth rate may have been too aggressive, for which Wall Street primarily and less so VMW management may have been responsible. And although there are some near-term headwinds ... we believe VMWs prospects remain solid."