EMC Sees a Bottom in IT Spending

EMC Earnings

EMC (NYSE: EMC) reported a bigger than expected decline in first-quarter sales today, but the data storage giant says it sees better times ahead.

EMC’s sales slumped 9.2 percent from the year-ago quarter to $3.15 billion, $100 million below the Thomson Reuters consensus forecast, led by a 25 percent decline in high-end Symmetrix storage-area networking sales and an 18 percent drop in midrange Clariion sales.

The company’s unified Celerra storage arrays continued to be a bright spot, growing at a “double digit” rate, according to CFO David Goulden. But even that might be a deceleration from the greater than 40 percent growth rate the Celerra line experienced last year.

EMC’s first-quarter non-GAAP earnings of 16 cents a share met Wall Street estimates. GAAP net income was $194.1 million, and non-GAAP net income excluding restructuring and other charges was $323.7 million.

The company declined to issue a formal outlook for the second quarter, but said it expects flat IT spending in the quarter, placing the company’s second-quarter sales potentially well below the $3.36 billion that analysts were looking for.

Still, EMC CEO Joe Tucci said, “I do believe that we are at or very near the bottom.” The second quarter “will continue to be sluggish” as customers continue their “just in time” spending pattern, but Tucci said he expects the third quarter to begin a “slower than normal” recovery.

Tucci said data storage sales are faring somewhat better than the networking and server markets. He said he expects IT spending to decline by high-single digits to low-double digits this year.

Tucci said the first six weeks of the year were “extremely slow,” but that business “improved in the latter half of the quarter.”

Dell (NASDAQ: DELL) accounted for about 10 percent of EMC’s overall revenues in the first quarter, up slightly from the fourth quarter, after the two companies moved to strengthen their long-running partnership.

Tucci said some of the weakness in Symmetrix sales could have been customers awaiting the arrival of the new Symmetrix V-Max. He declined to reveal any upcoming products, but said the company’s second-half product pipeline is “quite strong.”

Asked if he expects much competition from the proposed merger of Oracle (NASDAQ: ORCL) and Sun Microsystems (NASDAQ: JAVA), Tucci replied, “It’ll change the game to some degree,” but that the two will continue to work together.

“The name of the game has always been ‘co-opetition,'” he said, contrasting EMC’s “horizontal” approach with Oracle’s “vertical” strategy.

“They’ll push their way and we’ll push our way,” Tucci said. “Oracle’s obviously raised the stakes in that game, and obviously as we did [VMware’s] vSphere and V-Max, we’re raising the stakes in the game too.”

Tucci said EMC doesn’t plan more layoffs, but said he’s asked employees to take a temporary 5 percent pay cut.

VMware (NYSE: VMW), the server virtualization company majority owned by EMC, reported its quarterly results last night. Its shares plunged 20 percent today after it slashed its revenue outlook for the second quarter. EMC shares were lower by 4 percent today.

This story originally appeared on Enterprise Storage Forum.

News Around the Web