EMC Weathers Stormy Quarter, Denies Technology Threats

Despite increasingly tough market conditions, EMC posted a solid set of Q1 results this morning, which saw its revenues jump 17 percent to $3.47 billion, just above analyst estimates.

The vendor also denied that technologies like thin provisioning and de-duplication are cutting into earnings, and CEO Joe Tucci appeared to leave open the potential for EMC to sell more of its stake in VMware.

On a GAAP basis, the vendors earnings were 13 cents per share on net income of $268.8 million, down from $312.6 million and 15 cents in the year-ago quarter, although this quarter’s figure included a $79.2 million non-cash charge for acquisition expenses.

EMC’s non-GAAP earnings were 23 cents per share on net income of $477.3 million, up from 18 cents and $384.5 million in the same period last year. Analysts had estimated earnings of 16 cents.

”I am very pleased with our overall performance, despite a tough economic climate,” said Tucci during a conference call this morning. But he warned that this is no time for the faint-hearted in the storage market. “This is absolutely a case where you will see the strong get stronger and the weak get weaker -- we’re on the strong side.”The exec admitted that he doesn’t see the economy improving “anytime soon," explaining that EMC has had to be aggressive, particularly in the financial sector, which has traditionally been a cash cow for the storage industry.

”If you look at it on a percentage basis, while we’re not seeing any great growth to write home about, we’re not seeing a big decline,” he said. "But to do that, we’re having to take share from others."

This strategy appears to be working. Revenues from EMC’s Information Infrastructure division, which includes storage, content management, and security, were $3 billion in the first quarter, up 12 percent from the same period last year.

EMC’s CFO David Goulden highlighted the vendor’s NAS, Clariion, and Symmetrix offerings as helping drive this growth. “NAS revenues were up 50 percent, driven by strong demand for our NS20 and NS40,” he said, noting that Clariion and Symmetrix revenues were up 19 percent and 8 percent, respectively.

Despite the upbeat tone of today's EMC earnings call, at least one analyst feels that the vendor is not out of the woods yet. “Peeling back a layer, the quality of the quarter was not particularly high,” wrote Citigroup Investment Research analyst Paul Mansky in a note, explaining that EMC’s systems and software license revenues came in below his firm’s estimates. “[This is] pointing to elevated concerns we have over the demand environment, which will likely increasingly become a factor over the next two quarters compounded by seasonality.”Execs on this morning’s call also faced a barrage of questions from analysts eager to find out whether emerging technologies such as de-dupe and thin provisioning are hurting EMC by removing the need for users to make large investments in additional storage.

”I am not worried at all,” replied Tucci, explaining that EMC plans to ship Symmetrix thin provisioning in volume by the end of this quarter and extend the technology to higher-end systems later this year. “Let’s say that your utilization rate is 50 percent and I can bring it up to 85 percent. Even after I bring it up to 85 percent, it will still need storage.”

The CEO also downplayed rumors that EMC may spin off yet more of virtualization trailblazer VMware, which posted its own strong set of results last night.

”Right now, we have absolutely, positively, no plans to spin off VMware; both EMC and VMware are performing very well,” Tucci said, but he appeared to leave the door open for a future change in this strategy. “Management and the board are very focused on what will provide the maximum set of value to both sets of shareholders in the long term.”

The CEO was a little more forthcoming on EMC’s marketing plans, confirming that the vendor will be hiring more sales staff than it had originally anticipated this year. “Primarily, where we’re going to be adding these sales people is in the rapidly growing commercial and SME [markets]."Have a comment on this story? Please click "Discuss" below. If you'd like to contact Byte and Switch's editors directly, send us a message.