EMC Bucks June Swoon

With competitors and partners struggling all around it, EMC Corp. (NYSE: EMC) managed to avoid the June slump that hurt other storage companies, but the vendor concedes a bit of a slowdown in high-end systems and storage software.

Today, EMC reported revenues of $1.97 billion and net income of $193 million, or $0.08 earnings per share. The results were in line with First Call consensus and EMCs previous guidance. The company’s revenue was 33 percent higher than the same period last year, and income was 136 percent higher.

For guidance, EMC forecast revenue of around $2 billion and EPS of $0.08 to $0.09 for the current quarter and maintained full-year targets of $8.1 billion in revenue and net income of $850 million.

EMC was among the first storage companies to report earnings this quarter, after weeks of warnings by others in the sector (see Emulex Hits the Deck, Veritas Takes a Dive, StorageTek Sings Sad Song, Overland Guides Under, Another Reason to Hate Compliance, and Quantum Gives Prelim Results). A common theme among those that warned was that sales slipped in the last two weeks of June. EMC CEO Joe Tucci told analysts in a conference call today that, outside of a few Documentum software deals, EMC didn’t feel the late June slowdown. Tucci said he stands by his previous bullish statements that IT spending will grow more than 4 percent this year, with storage spending increasing more than 7 percent.

“There was a lot of noise this quarter about a broad-based, end-of-June slowdown. To this, let me emphatically state that, with an exception of a handful of Documentum deals, we did not see this,” Tucci said. “We did not see big deals pushed. We did not see customers delay IT products.” He characterized IT spending growth as slow but steady.Tucci said EMC sold out its midrange SAN Clariion systems during the quarter. He said the low-end midrange Clariion CX 300, NAS gateway products, and VMware Inc. software were especially hot sellers.

High-end Symmetrix systems and Documentum were not-so-hot sellers, however. Symmetrix revenue of $659 million was up 5 percent year-over-year but down 3 percent from the previous quarter. Clariion revenue of $326 million was up 43 percent from last year.

Tucci said Symmetrix sales were down sequentially partly because the Symmetrix line benefitted from several large Asian sales in the previous quarter. However, he admitted EMC is likely losing share to leader IBM Corp. (NYSE: IBM) in the mainframe market and said EMC “misguessed on the mix of drives” because it didn’t have enough of the highest-speed drives available. “We left more of Symmetrix behind than I would have liked,” Tucci said. The disparity between Clariion and Symmetrix will likely continue. Tucci said he expects midrange revenue to grow 10 percent for this full year compared to high-end growth of 3 percent.

Sales of software EMC acquired when it bought Documentum for $1.7 billion last October also fell from last quarter (see EMC Cops Documentum). Documentum’s $78 million in revenue was up 14 percent from last year but slipped $3 million from last quarter. Tucci says Documentum is feeling the same customer pinch as other enterprise software products.

“The industry has beaten the hell out of hardware, and now it’s software’s turn to get squeezed,” he said.Revenue from the other software companies EMC acquired last year grew (see EMC Gobbles Legato and EMC Gobbles VMware). Legato Software’s revenue was $86 million, up from $77 million in the same period last year and $83 million last quarter. VMWare revenue was $47 million in the first full quarter under EMC, and Tucci called it “the hottest software play in technology today.”

Tucci said Legato and VMWare escaped the enterprise squeeze because a big part of Legato’s sales are through lower-end channels and VMWare is sold packaged with PC servers.

— Dave Raffo, Senior Editor, Byte and Switch