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EMC ILM Spells M-O-N-E-Y

EMC rode its information lifecycle management (ILM) and virtualization strategies to strong results in the third quarter.

EMC posted quarterly earnings of 9 cents a share Tuesday morning, matching Wall Street expectations, while revenues grew 34.2% year-over-year to $2.03 billion, ahead of forecasts. Gross margins of 51.4% were better than expected, and the company reaffirmed fourth-quarter estimates of 11-12 cent earnings and $2.23-$2.27 billion revenues.

CFO Bill Teuber called the results "an outstanding quarter for EMC" in its "most challenging quarter of the year."

Software and services posted the strongest growth, up 55-56% year-over-year to more than $500 million each, as the company rode the ILM and virtualization trends to strong gains. Systems revenue grew 18% to $949 million.

EMC ended the quarter with $7 billion in cash, and day sales outstanding were a record-low 43.

"We're gaining market share in virtually every major market segment," said CEO Joe Tucci. "While our competitors are just starting to talk about ILM, we are shifting into overdrive."

Factoring out acquisitions and currency effects, EMC posted "apples to apples" growth of 18%, Teuber said.

If there was a weak spot in the numbers, it was high-end Symmetrix sales, which grew only 3% in the quarter, but EMC attributed those results to an order backlog, saying new offerings from the likes of Hitachi Data Systems had little effect.

"Clearly, the new products are more competitive," Tucci said, "but they are not game-changing products."

CLARiiON, Centera and network attached storage (NAS) sales were much stronger, rising more than 50%. Teuber said the company is "taking serious share in the midrange."

In software, EMC's Legato and Documentum sales were up 13-17%, while VMware sales soared more than 200% to $61 million.

Teuber said the pricing environment is "still tough," but it stabilized in the quarter.

Tucci said the "IT spending environment continues to improve" at a "slow and steady pace," and added that he expects normal seasonal strength in the fourth quarter.

If there's a change in the way customers buy IT products, however, it's that they now want to "pay as they grow," Tucci said, instead of making large infrastructure investments up front.

Tucci also made a number of predictions for 2005:

"ILM will really go prime-time," he said. Disk-based backup and recovery will be big. iSCSI will begin to take off in the second half of the year in small and medium businesses (SMBs) and the edge of enterprises. Storage virtualization won't be a big factor yet, but server virtualization will gain "a lot of momentum," he predicted.

The company also said that it couldn't initially meet demand for its low-end AX100 product, but has now ramped up production to where it needs to be. "We're where we want to be now," Tucci said.

Shares of EMC rose 3% in early trading Tuesday.

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