EMC Shows No Signs of Slowdown

Technology stocks have been battered in recent weeks on earnings that have failed to live up to Wall Street’s expectations, but EMC showed no signs of a slowdown in its latest quarterly report issued Tuesday morning.

EMC, which commands about a quarter of the storage market, had reported preliminary results earlier this month that were above analysts’ expectations, so the company’s earnings of 17 cents a share on a 15% jump in sales to $2.71 billion was largely expected. But the company’s prediction of 15-17% sales growth in 2006 was better than anticipated.

The company’s results were driven by strong midrange, NAS, connectivity, content management and virtualization sales. Midrange Clariion sales were up 32% from the year-ago quarter, NAS sales were up 50%, connectivity revenues climbed 27%, content management was up 25%, and VMware virtualization sales shot up 62%.

High-end Symmetrix sales — which make up about half of EMC’s total revenue — were flat from the year-ago quarter, but up 19% sequentially from the third quarter, as the new DMX 3 platform sold out in the quarter. The DMX 3 made up about a third of Symmetrix sales in the fourth quarter, with the average system shipping with 60TB.

EMC CEO Joe Tucci said the company plans a number of ILM announcements on Thursday, including “new lower-end members of the DMX family as well as higher-end extensions.”

Software revenues rose 15% in the quarter to pass $1 billion for the first time, with SMARTS automated network systems management a growth driver. Backup, recovery and archiving sales climbed 13%, and services revenues grew 4%. Overall, EMC’s numbers were driven by double-digit sales growth across all global regions.

Tucci predicted that virtualization will continue to be a hot area, calling the technology a “game changer.” EMC is well-positioned for the trend, he said, with its VMware, Invista and Rainfinity products.

Tucci also took issue with characterizations of the company’s reorganization plan as “layoffs.” The company plans to eliminate some management layers and under-performing areas and “reinvest 100%” of the savings in other areas such as sales and development, Tucci said. “It was, and is, all about growth,” he said.

Analyst Daniel Renouard of R.W. Baird was upbeat on EMC’s results.

“The macro environment for corporate spending is solid, storage is a key focus area, and EMC has nicely diversified its revenue and earnings stream,” Renouard wrote.

EMC shares were up 2% in morning trading Tuesday.

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