EMC Guides Low

EMC Corp. (NYSE: EMC) did as well as expected financially last quarter, but executives say the current quarter won't (see EMC Announces Earnings).

EMC reported revenue of $2.34 billion last quarter, up 19 percent from last year and 5 percent from the previous quarter (see EMC Growth Continues). Income of $293 million or $0.12 earnings per share (EPS) increased 52 percent from last year and 9 percent sequentially. The revenue and EPS matched analyst consensus posted on Reuters.

Guidance is a different story, though. EMC forecast $2.34 billion in revenue and $0.12 EPS this quarter. That represents no sequential growth, although EMC execs admit third-quarter revenue is usually about 2 percent to 3 percent greater than the second. Analysts expected $2.39 billion and $0.13 EPs in guidance.

Investors appeared more swayed by the guidance than earnings, as shares fell $0.67(4.65%) to $13.75 by late morning.

EMC attributed the poor guidance primarily to the strengthening of the dollar and its impact on foreign revenue, but other factors are in play. By EMCs estimation, currency impact will total $25 million to $40 million, while normal sequential growth would increase revenue by $50 million to $60 million. That means $10 million to $35 million of normal growth will be missing, regardless of currency impact.Financial analysts suspect a product transition to new Symmetrix high-end systems will hurt EMC’s revenue, as customers wait for the new release to ship later this year. EMC will announce Symmetrix version 7 on Monday (see Surf, Sand & Storage).

CEO Joe Tucci said he didn't want to talk about Symmetrix during today’s earnings conference call, but he did anyway.

“My marketing team specifically asked me not to mention we are announcing Symm 7 Monday, so I won’t,” Tucci cracked. “But there’s so much buzz about Symm 7, we fully expect we will create some rejuvenation for the high end of the market.”

Symmetrix still makes up most of EMC’s system sales, but revenue of $678 million last quarter increased 4 percent from last year, while midrange Clariion revenue shot up 32 percent to $431 million. EMC’s main high-end competitors Hitachi Data Systems (HDS) and IBM Corp. (NYSE: IBM) have launched new systems over the past 10 months and might be contributing to lower Symmetrix growth (see Hitachi Struts Mr. Universal and IBM's New Shark Tale).

When it comes to software, EMC has a mixed picture as well. Two software categories grew robustly. Revenue from VMware server virtualization software increased a whopping 93 percent to $91 million, and backup and archiving revenue grew 28 percent to $50 million.However, while overall software revenue grew 23 percent to $878 million year over year, storage management and content management revenue fell below EMC’s targets. Storage management software increased 4 percent to $152 million from last year, but would have dropped 4 percent if not for revenue from software EMC acquired when it bought Smarts for $260 million in December (see EMC Gets Smarts). Revenue from Documentum content management software ticked up 1 percent to $39 million.

Tucci blames the dip in storage management revenue to price breaks EMC gives customers who consolidate several SANs into one large SAN. Tucci expects EMC will continue to cut management software prices to stoke more hardware revenue, especially when its new Symmetrix systems start shipping.

“I think [software management revenue] will come back in the second half of the year, but I don’t expect it to come roaring back,” he says.

As for content management, Tucci says several large transactions slipped into this quarter, and he still has high expectations for that segment.

— Dave Raffo, Senior Editor, Byte and Switch0