EMC Cruises Along


EMC posted 21 percent sales growth in the second quarter, led by strong midrange storage sales and strength in the company's RSA security and VMware virtualization divisions.

EMC CEO Joe Tucci said the company is "in a sweet spot of the IT industry," and said new storage systems introduced last week give the company momentum heading into the second half. There were some weak spots in Tuesday's earnings report, notably disappointing content management and archiving sales and a forecast that wasn't quite as robust as Wall Street analysts were hoping for.

EMC's sales reached $3.12 billion in the quarter, the company's 16th straight quarter of double-digit year-over-year growth and $50 million more than expected. GAAP net income was up 33 percent to $334.4 million, or 16 cents a share, a penny better than analysts were looking for, according to Thomson Financial.

But full-year sales guidance of $12.7 billion and earnings that "are expected to exceed $0.64" was less than the $12.78 billion and 68-cent consensus estimates.

Systems revenue was up 18 percent, led by strong midrange Clariion sales. Software license and maintenance revenue rose 27 percent, led by RSA and VMware sales. Software and systems comprise 84 percent of EMC's business. Professional services, systems maintenance and other services grew 18 percent. Security sales were up 21 percent, and VMware revenues soared 89 percent to $298 million. EMC plans to spin off its virtualization unit soon in an IPO.

But the Content Management and Archiving business grew just 5 percent to $174 million. EMC blamed the results partly on customer hesitation because of consolidation in the space (see Google Grabs Postini and E-mail Archiving Spurs Gold Rush). EMC will formally announce its Documentum 6 platform next week.

Also in the content management space, EMC recently acquired Dutch startup X-Hive, which makes an XML database and a component content management system sold mostly to the aerospace and defense industries.

Baird analysts were positive on the earnings report and EMC's stock, noting that VMware sales were higher than expected and would likely continue to exceed estimates.

EMC shares were off 1 percent Tuesday in midday trading.

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