High-End Sales Drive EMC’s Growth

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EMC survived a rocky first quarter, thanks in part to high-end storage and virtualization sales.

EMC today reported a slim first-quarter profit growth of 1 percent, as income rose to $272.5 million, or 11 cents per share, from $269.8 million in the year-ago period.

The information systems vendor posted revenue of $2.55 billion, which was 14 percent higher than the $2.24 billion for the period a year ago, but short of analysts estimates. Analysts at Thomson Financial had expected EMC to post $2.58 billion in sales for the quarter.

EMC also said it would buy back an additional $2.5 billion of its shares, raising its total repurchase to $3 billion in 2006. The company ended the first quarter with $7.4 billion in cash.

EMC CEO Joe Tucci said on a conference call that the record first-quarter revenues increased thanks to the company’s top-shelf EMC Symmetrix DMX-3 storage systems, VMware virtualization software, Documentum content management software and Smarts resource management software.

Thanks to the DMX-3, which can handle thousands of terabytes of tiered storage, systems revenue grew 20% to $1.23 billion.

Sales of the DMX-3 made up more than half of the total Symmetrix systems revenues during the quarter and gave EMC its strongest quarterly systems revenue growth rate in more than two years.

The Symmetrix results came as a pleasant surprise, as sales of EMC’s biggest and most expensive systems haven’t been doing as well as the company would have liked, or as well as its mid-tier Clariion line of late.

Software license and maintenance revenue jumped 11 percent to $925 million, while service and maintenance sales grew 6 percent to $396 million.

EMC’s VMware subsidiary continues to excel, growing sales 64 percent from the prior year period to $131 million, with the introduction of VMware Server as a free virtualization product to accelerate adoption of the technology.

EMC’s platform software revenue growth was led by its Documentum subsidiary’s enterprise content management software, which grew 30 percent from the year-ago quarter.

Tucci attributed this success in part to the company’s purchase of Captiva. When factored into EMC’s total ECM sales, the license growth would be 62 percent for the quarter.

The company’s Smarts software unit also enjoyed an uptick, thanks to growing interest in locating network problems in real time without human help.

While the company does not disclose financials for this segment, Tucci promised that Smarts growth was in the “VMware-like territory, albeit off a smaller base.”

While acknowledging that the first quarter has traditionally been EMC’s weakest quarter, Tucci said he was disappointed that EMC couldn’t grab the extra $20 to $40 million in revenues that would have put the company in line with its estimates.

He attributed the failings to excessive unplanned backlog, as well as poor execution by the company’s Legato backup and archive software division, which fell 21 percent in the quarter. The company’s Asia-Pacific and Japan business also lagged, growing only 1 percent year over year.

“This is the first quarter in a long time in which we pointed out that our execution was less than crisp on two fronts, namely our backup and archive business and in our APJ region,” Tucci said. “I want to make it clear that we are and will address these areas.”

“This is the first time we’ve missed at least even a piece of our guidance in a long time, so we’re obviously not pleased about that, but the business was there and we will get it.”

Looking forward, EMC expects revenues for the second quarter of 2006 to be about $2.66 billion, with earnings per share at 13 cents. For the year, the vendor expects to generate revenues between $11.1 billion and $11.3 billion.

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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