EMC Q1 Reaps Small Bump in Dollars

EMC today reported a slim first-quarter profit 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 also
completed the first quarter with $7.4 billion in cash.

EMC CEO Joe Tucci said on a conference call 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 was $1.23 billion, a 20
percent kick-up over the year-ago quarter.

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 come 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 has been doing.

Software license and maintenance revenue jumped 11 percent to $925 million,
while service and maintenance 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, introducing VMware Server as a free
virtualization product to accelerate adoption of its technology.

EMC’s platform software revenue growth was led by the company’s 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, the license growth
would be 62 percent for the quarter.

The company’s Smarts software unit also enjoyed an boost, thanks to an
increased 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 Q1 has traditionally been EMC’s weakest quarter,
Tucci said he was disappointed that EMC couldn’t grab the extra $20 million to $40
million in revenues, which would have put the company in line with its
estimates.

He attributed the failings to excess, unplanned backlog, as well as poor
execution by the company’s Legato back-up and archive software division,
which fell 21 percent during Q1. 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 back-up 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.”

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.