EMC Braces for Tough Storage Market - EnterpriseStorageForum.com

EMC Braces for Tough Storage Market

EMC (NYSE: EMC) today issued a downbeat outlook for IT spending, saying global IT spending could fall 10 percent in the first half of the year before rebounding, with the data storage market faring only slightly better.

"We're all witnessing a severe economic crisis being played out across the globe," CEO Joe Tucci said on the company's fourth quarter conference call.

"Customers are dramatically reducing the number of IT suppliers that they will deal with," he added. "There is a real flight to quality taking place. In addition, customers are giving every purchase order more scrutiny and are subjecting them to higher levels of approval."

Tucci said EMC is well positioned to weather the downturn and expects its data storage, security and server virtualization markets to perform better than the overall IT market.

EMC said its "best estimate" is that 2009 global IT spending will decline "in the mid-to-high single digits compared with 2008," and it "expects the markets that it addresses will perform slightly better than the overall IT market." The company thinks "a higher than usual percentage of the full-year IT spending will take place in the second half of the year" — which could make for a very rough first half for IT spending.

Enterprise Strategy Group senior analyst Brian Babineau said that outlook could contain a glimmer of good news. "Companies right now are planning for the absolute worst," he said. "If the absolute worst doesn't last that long, then the recovery could be better than anticipated."

EMC's fourth-quarter results were in line with the guidance the company gave earlier this month (see EMC's Strong Quarter Bodes Well for Storage Sales).

The company's fourth quarter revenue rose 5 percent year-over-year to $4.02 billion, slightly ahead of estimates, but it broke a streak of 21 consecutive quarters of double-digit sales growth for the company. First quarter sales are expected to be flat compared to the first quarter of 2008.

GAAP net income was $288 million, or 14 cents a share. Factoring out a 10-cent restructuring charge, EMC's pro forma earnings of 24 cents a share were a penny better than analysts anticipated. EMC's full year sales rose 12 percent to a record $14.88 billion, but that was just under the $15 billion that Tucci was targeting before the economic storm that followed the mid-September failures of Lehman Brothers and AIG. Non-GAAP net income reached $2.16 billion last year, and the company ended the year with an enviable $8.8 billion in cash and investments.

Tucci said the fourth quarter was tough, but he expects a "harder storm" in the first two quarters of 2009, and a "bigger than normal drop off in Q1."

EMC experienced an 11 percent sequential sales decline last year between the fourth quarter of 2007 and the first quarter of 2008, and as analysts were already looking for a 13 percent sequential decline this quarter, the storage giant might not fare any worse than analysts were already expecting. EMC shares were trading 2 percent lower in morning trading on the report.

Primary Dedupe Coming

Tucci said EMC plans a number of new products this year, including primary storage de-duplication — a market that until now has only been served by a few vendors, including EMC competitor NetApp (NASDAQ: NTAP) (see NetApp Dedupes the Competition).

EMC also plans a new high-end Symmetrix, new versions of its fast-growing unified arrays, and new entry-level offerings. The company also plans new data mobility products, greater use of solid state drives (SSD) and enhanced thin provisioning, and its VMware (NYSE: VMW) and RSA Security subsidiaries will get new product lineups too.

EMC's Information Infrastructure business, which includes storage, RSA Security, and Content Management and Archiving, grew sales 2 percent year-over-year to $3.5 billion in the fourth quarter, while VMware contributed $514 million to the company's sales, up 25 percent.

Symmetrix sales declined 9 percent, while Clariion sales were up 6 percent and unified storage sales were up double-digits. Dell (NASDAQ: DELL) accounted for 10.9 percent of overall sales and 25 percent of Clariion sales. Tucci said EMC's relationship with Dell is "back on track" (see Dell, EMC Deepen Storage Ties).

Sales were up 6 percent in the U.S. and 4 percent elsewhere. EMC also plans cost-cutting moves that are expected to save $350 million this year.

Paul Shread is managing editor of Enterprise Storage Forum

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