Tucci: EMC's Problems 'Self-Induced'

EMC stands for Executive Mea Culpa today, after CEO Joe Tucci blamed himself and senior management for the company's poor revenue result last quarter.

EMC's earnings report today confirmed the numbers it gave out on Monday, but Tucci used the call to explain what went wrong and tried to assure everyone that the ship is not sinking despite two straight bad quarters that prompted the company to cut its guidance for the full year. (See EMC Slips on Symmetrix Transition, EMC Reports Earnings, and EMC Hiccups, Waits for Clariion.)

"I'm deeply disappointed with our performance this quarter," Tucci said on a conference call this morning. "Our overall execution was clearly not up to EMC standards. Our senior executive team, including me, takes responsibility. While we did have some missteps, we are stepping up in taking ownership, and offering no excuses. We can and will do better."

As it forecast Monday, EMC reported revenue of $2.57 billion for the quarter, up 10 percent from the same quarter last year, but below previous guidance of $2.66 billion. EMC today forecast revenue of $2.66 billion for this quarter, but cut its 2006 guidance from $11.1 billion to $10.8 billion.

What went wrong? According to Tucci, the company misjudged demand for the Symmetrix DMX-3 high-end SAN system it launched in January. (See EMC Makes Good on DMX-3.) He said more orders came in for the DMX-3 and fewer for the older DMX-2 than expected late in the quarter, and EMC didn't have enough DMX-3 systems built to fill the orders. He vowed that EMC will make future product transitions faster and smoother."This issue was a self-induced execution failure on our part. There is no excuse," Tucci said.

Tucci emphasized that the problems did not come from increased competition or because of product performance. He admited that new products from Hewlett-Packard, IBM, and Network Appliance have forced longer sales cycles.

EMC has fallen below its guidance two straight quarters, and it took a selling spree late in the fourth quarter of 2005 to save that one. Or as Tucci put it, "I find three quarters in a row we're doing a tremendous number of diving catches in the outfield, and twice, although we caught the ball, we haven't gotten up in time to throw the runner out."

Symmetrix revenue for the quarter was $677 million, the same as this quarter last year, and down 5.8 percent from the first quarter of 2006. Revenue from midrange Clariion sales were $447 million, up 4 percent from last year, but down 5.4 percent from last quarter. EMC began selling its new Clariion CX3 systems in May, a month into last quarter. (See EMC Uncages 4-Gig Clariions.)

Tucci used the call to defend the intended $2.1 billion acquisition of RSA Security announced June 29. (See Did EMC Overpay?, EMC Secures RSA for $2.1B, and Users Welcome Super-Deal.) Analysts questioned whether EMC overpaid for the security firm, and EMC's stock price dived the day after the deal was revealed. Tucci called RSA's security products "best of breed," lauded EMC's track record for acquisitions such as VMware, Documentum, and Legato, and insisted the RSA deal will be a positive."EMC has fundamental issues, such as more competition, worsening execution, and the law of large numbers," says a Wall Street analyst who asked to remain anonymous. "The good news is, EMC has taken the first step and acknowledged it has a problem. The bad news is fixing those problems could be very difficult."

EMC had positive software revenue results. VMware virtualization revenue grew 73 percent since last year to $157 million, backup and archiving licenses increased 13 percent, and content management revenue increased 30 percent.

Still, Tucci did not pretend EMC had a good quarter. "I'm deeply disappointed we let our investor base down," he says. "The good news is we have not let our customers down. We will not miss like this again. Better days will be ahead."

The investor base needs more convincing. Despite a late-day rally, EMC's shares fell again today, dropping 15 cents (1.5 percent) to $9.83.

Dave Raffo, News Editor, Byte and Switch