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EMC Reports Slipping Profits, Weaker Margins

EMC Earnings
EMC, the top maker of corporate data storage equipment, reported a lower quarterly profit and warned that the weak economy will take a bite out of its margins this year.

While CEO Joe Tucci said he expects global tech spending to pick up in the second half, EMC (NYSE: EMC) also indicated the slump in spending over 2009 could be worse than initially expected. EMC shares fell 5 percent in pre-market trading.

EMC said its best estimate is for 2009 global tech spending to fall in the very-high-single-digit to very-low-double-digit range compared to 2008. In January it forecast a drop in the mid-to-high single digits.

"It was a mixed quarter," said Wedbush Morgan Securities analyst Kaushik Roy. "People kind of knew they were going to struggle, so it was not so bad."

Net income fell to $194.1 million, or 10 cents per share, for the first quarter ended March 31, from $251.6 million, or 12 cents, a year earlier.

Profit excluding items was 16 cents per share, matching the average analyst forecast according to Reuters Estimates.

Revenue fell 9.2 percent to $3.15 billion, missing the $3.25 billion average forecast of analysts. Roy said most analysts had not expected EMC to meet the forecast, though they had not bothered to formally update their estimates.

EMC refrained from giving full-year profit or revenue forecasts, but said pressure from the decline in tech spending would reduce its gross and operating margins this year compared with 2008.

CFO David Goulden said EMC plans near-term cost cuts to save $100 million in 2009. A spokesman said they do not include layoffs.

EMC previously disclosed a restructuring plan to cut $350 million in annual costs that did include layoffs.

"We believe these near- and longer-term actions to improve our effectiveness and efficiency will help EMC ride out this period of economic uncertainty and put us in a position of even greater strength when conditions improve," Goulden said in a statement.

Shares in the Hopkinton, Mass. company were down 5 percent to $12.04 in premarket trading.