EMC: It's Tough Out There - EnterpriseStorageForum.com

EMC: It's Tough Out There

EMC (NYSE: EMC) has held up remarkably well in the face of a global economic slowdown, but even the data storage giant admitted to seeing some weakness on its quarterly earnings call this morning.

CEO Joe Tucci told analysts that the company saw a slowdown in the last three weeks of September, as customers turned cautious amid a dramatic meltdown on Wall Street. A few large projects got postponed and financial firms were particularly cautious, he said.

Tucci said he expects the slowdown to continue into 2009 — but what was perhaps most remarkable was that the company's fourth-quarter guidance wasn't terrible, coming in just below analysts' estimates. "We still expect there will be modest growth," he said.

Relieved that the company's guidance wasn't worse, EMC shares gained 5 percent this morning even as the broader market tumbled about 3 percent.

EMC's third-quarter sales were $3.72 billion, up 13 percent from the third quarter of 2007 and in line with estimates. It was the company's 21st consecutive quarter of double-digit year-over-year revenue growth.

Third-quarter GAAP net income was $411 million, or 20 cents a share, in line with estimates after factoring out a 1 cent tax benefit.

EMC expects fourth-quarter sales of $4 billion and earnings of 23 to 24 cents a share, compared to 24-cent and $4.14 billion Thomson Financial forecasts. That would be year-over-year sales growth of a little less than 5 percent.

"EMC executed extremely well this quarter, and not just on the revenue side," said Enterprise Strategy Group analyst Brian Babineau, who also liked EMC's gross margins and strong cash flow — "and in this economy, cash is king."

"The only downside was the Content Management Archiving revenue, and even that wasn't bad," he said.

Babineau said EMC's strong storage results stand in contrast to weak reports from Sun (NASDAQ: JAVA) and FalconStor (NASDAQ: FALC) and mixed numbers from IBM (NYSE: IBM). "We will see the men separated from the boys," he said.

EMC's U.S. revenue grew 7 percent, while revenue from operations elsewhere rose 19 percent. The company's Information Storage business grew 11 percent to $2.9 billion, driven by strong midrange and entry-level unified storage sales and backup, recovery and archive software sales, while high-end Symmetrix sales were flat.

Content Management and Archiving was $188 million, down 1 percent from the year-ago quarter. RSA security revenues rose 11 percent to $147 million.

VMware (NYSE: VMW), which is 85 percent owned by EMC, grew sales 33 percent to $472 million, beating Wall Street estimates. Its shares were up 10 percent this morning.

Analysts Jayson Noland of R.W. Baird and Kaushik Roy of Pacific Growth Equities noted that Dell (NASDAQ: DELL) sales were down 12 percent sequentially, suggesting that Dell's storage efforts, such as its EqualLogic acquisition, are affecting EMC's revenue.

Roy said EMC is making up the lost ground with gains in channel and NAS sales.

Noland said he agreed with Tucci's statement that the IT spending downturn won't be nearly as pronounced as it was in the 2000-2002 tech-led downturn. "We generally concur with this view, as the level of excess in IT is much less pronounced today relative to 2001/2002," he wrote.

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