EMC Tackles Tough Spending Climate

The tough economic climate shows no signs of letting up, according to EMC CEO Joe Tucci, despite the vendors strong second quarter results, which were released this morning.

EMC posted second quarter revenues of $3.67 billion, an 18 percent hike on the same period last year, and well above analyst estimates of $3.56 billion.

The vendor’s earnings were 18 cents per share on net income of $377.5 million, compared to 16 cents and $334.4 million in the year-ago quarter.

On a non-GAAP basis, EMC reported earnings of 24 cents on net income of $511.7 million, 20 percent higher than the 20 cents reported in the second quarter of 2007. Analysts had estimated earnings of 17 cents.

“Our overall performance in Q2 was strong, especially when you consider the tough economic climate in which we operated,” said Joe Tucci, the EMC CEO, during a conference call this morning. “We achieved double-digit growth rates in our three geographies.”The CEO nonetheless painted a bleak picture of the overall economic landscape.

”The economic environment is tough and I believe will remain tough for the next several quarters,” said Tucci, explaining that users are now being forced look for faster ROIs and there are “more management layers” in their approval processes.

Despite the troubled spending climate, Tucci explained that EMC is making headway.

”For sure, customers are showing more caution, but don’t confuse caution with not spending,” he said. “There is sufficient business out there for what we need to do, we’re not opportunity-starved.”

Revenue from EMC’s Information Storage business, which includes storage systems, software, and services, reached $2.87 billion in the second quarter, an increase of 14 percent compared to the same period last year.At the high end of the market, revenue from the vendor’s Symmetrix systems increased 10 percent year-over-year. Revenues from EMC’s midrange Celerra system grew more than 50 percent over the same period.

EMC’s Content Management and Archiving business also experienced solid growth, growing 18 percent year-over-year to $204 million.

”We take note of the strength in hardware, which we view to be a more reliable indicator of real-time demand,” wrote Paul Mansky, an analyst at Citigroup, in a note released this morning, acknowledging the challenges faced by EMC’s VMware subsidiary. “The VMware downside complicates valuation but core EMC appears to be withstanding the macro [climate] better than we anticipated.”

Despite the increasingly challenging economic climate, hardware vendors such as EMC, IBM and HP are faring comparatively well, according to Mansky. “Broadly, enterprise demand doesn’t appear to be falling off a cliff,” he added.

Analysts on this morning's call also grilled Tucci on the subject of VMware, which recently swapped out its CEO and missed analyst revenues in its second-quarter results last night.Despite ongoing rumors that EMC might spin off its remaining 85 percent share in VMware, the EMC supremo explained that this is unlikely.

”EMC has no plans to spin out the remaining 85 percent of VMware,” he said, adding that the software vendor sits at the “nexus” of could computing, data center virtualization, and desktop virtualization.

Describing the new VMware CEO Paul Martiz as a “world-class technologist”, Tucci explained that the virtualization vendor could become an even bigger cash cow for EMC and its shareholders. “The virtualization market over the next several years will reach double-digit billions annually.”

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.