Data Explosion Drives Growth For EMC

EMC’s Joe Tucci Source: EMC

UPDATED: EMC (NYSE: EMC) reported respectful gains today in overall first-quarter revenue of $3.47 billion, reflecting a 17 percent increase over the previous year. It marks the storage vendor’s 19th consecutive quarter of double-digit revenue growth.

Profits landed at $268.8 million, reflecting 13 cents a share, a bit of a drop from last year’s first quarter of $312.6 million (15 cents a share).

“It was an extremely well-executed quarter,” Brian Babineau, senior analyst, Enterprise Strategy Group, told InternetNews.com. Despite criticism of the company’s acquisition strategies and not spinning off all of VMWare, Babineau praised the company’s performance.

Systems revenue increased 10 percent, and software license and maintenance revenue spiked 18 percent — each representing 41 percent of total first-quarter revenue. Services revenue grew 30 percent, accounting for 18 percent of total revenue.

EMC’s financial performance, according to industry watchers, was impressive given a few shaky economic months and as EMC faces a bit more competition in certain technology areas.

“It’s a solid to excellent performance,” Charles King, Principal Analyst, Pund-IT, told InternetNews.com. He added that EMC’s strength in the mid-market was notable and pointed to the company’s boost from majority-owned company VMware (NYSE: VMW).

Celerra network-attached storage revenue increased more than 50 percent, Clariion revenue rose 19 percent and Symmetrix revenue increased 8 percent, compared with the year-ago quarter. EMC’s content management and archiving business increased first-quarter revenue 8 percent over the past year to $185.2 million.

VMware, acquired in 2004 for $600 million by EMC, posted revenues of $438.2 million, an 71 increase compared with the same quarter the previous year. The 2007 revenues were $1.32 billion, making it one of the fastest-growing public-software companies. EMC retains 86 percent economic and 98 percent voting interest in VMware.

“The growth in [VMware] revenues was a particularly luminous bright spot, especially since that success coincided with the company experiencing increasing competitive pressure,” King said.

Industry watchers noted that other recent acquisitions are paying off for EMC.

First-quarter revenue for RSA, the security division EMC bought in June 2006 for $2.1 billion, grew 13 percent from the first quarter of 2007 to the same quarter in 2008, reaching $134.9 million.

Enterprise storage needs, prompted by the growing data piles facing every enterprise, are likely driving business. In an EMC-sponsored digital universe study, IDC estimated that 988 billion gigabytes of digital information will be created in 2010.

The data expansion is already reverberating. EMC revenue tied to information storage, which includes storage systems, software and professional services, hit $2.71 billion, an increase of 12 percent compared with the period a year ago.

In its earnings release, EMC noted expansion of its storage portfolio is likely tied to revenue increases. This January EMC integrated flash-based solid state drives into its Symmetrix DMX-4 product line.

It’s expected that the latest acquisitions in the first quarter will bode just as well for EMC, including the purchase of drive maker Iomega and WysDM , a data-protection management vendor.

“For all the reported doom and gloom with economic news and other issues, you have a company like EMC who, instead of going into a safe port to ride out the storm, continues to grow and diversify as they have done over the past decade or more,” Greg Schultz, founder and senior analyst at StorageIO, told InternetNews.com.

King concurred with Schultz’s take and expects even better news next quarter.

“The Iomega acquisition and the decision to expand EMC’s stock buyback program by 250 million shares both highlight the company’s long-term strategies of focusing on opportunities in new markets and returning value to its shareholders,” King said.

Yet analysts noted that in rough economic times it’s typically the consumer-faced storage players, such as Hewlett-Packard (NYSE: HPQ), that will experience initial impact and then a trickle-down effect.

“But if a downturn damages the broader economy, then things could get rock for business/industry-focused vendors including EMC. That said, the company’s leadership seems fully aware of these and other potential dangers, and are keeping EMC on track,” King said.