EMC Back on Track, Wields Ax

After spending more than $7 billion on acquisitions in the last few years, EMC plans to take a break.

EMC on Tuesday reported third-quarter results that were better than expected and vowed to cut roughly four percent of its work force to make room for its 21 acquisitions of the last three years.

EMC, which has spent the last few years broadening its portfolio to include software for virtualization, security and content management, earned 15 cents a share on sales of $2.82 billion, both well ahead of Wall Street estimates, as the company recovered from a couple of rocky quarters after miscalculating product demand.

Baird analysts estimate that EMC’s revenues grew 16 percent year-over-year on an organic basis in the quarter (excluding acquisitions).

EMC’s fourth-quarter guidance of $3.16 billion in sales and 15-cent earnings were roughly in line with analysts’ forecasts, but Baird analyst Daniel Renouard said the company was likely being conservative after disappointments earlier this year.

To improve operations, the Hopkinton, Mass., company said it will cut some 1,250 employees by the end of 2007 from its work force of about 26,500.

Cuts will be made worldwide in management and other areas where redundancies exist, although none will come from EMC’s VMWare virtualization software group.

From this restructuring, EMC estimates that it will record a pre-tax charge of between $150 million and $175 million, or 6 cents per diluted share, in the fourth quarter of 2006.

Lamenting the layoffs on a conference call this morning, EMC President and CEO Joe Tucci said the company’s approach is not to “break a company,” by shedding core assets such as people. However, he said these cuts were necessary.

Asked to provide more color about the cuts, Tucci refused, noting that most of the people affected are just finding out today.

There were silver linings, too.

EMC, which competes with IBM, Hitachi Data Systems and HP in the storage market, said Q3 revenue rose 19 percent to $2.82 billion, from $2.37 billion in Q3 2005.

David Goulden, executive vice president and CFO at EMC, said this is due to strong demand for new Symmetrix DMX-3 and EMC Clariion CX3 storage arrays, VMware products and Smarts resource management software.

Systems revenue in the third quarter was $1.3 billion, a 19 percent increase from the year-ago period.

That’s an improvement from Q2 in July, when the company reported only an 8 percent increase in systems sales, which was the main culprit in its earnings shortfall.

Software license and maintenance revenue grew 25 percent to $1.1 billion. Professional services and systems maintenance sales grew 7 percent.

VMware, the company’s most consistent growth segment since it acquired it two years ago, grew total revenues 86 percent year-over-year to $188.5 million. Smarts’ software license sales grew more than 100 percent for the quarter.

Security revenues for the quarter, including the period in which EMC did not own RSA Security or Network Intelligence, grew 30 percent compared with the year-ago period.

Goulden said that RSA Security and Network Intelligence, which form the nuts and bolts of EMC’s new security division, added $37.8 million to Q3 revenue.

EMC shares were down 3 percent Tuesday afternoon.

Article courtesy of InternetNews.com

Clint Boulton
Clint Boulton
Clint Boulton is an Enterprise Storage Forum contributor and a senior writer for CIO.com covering IT leadership, the CIO role, and digital transformation.
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