EMC posts broad Q3 revenue gain

CEO says signs of slowdown noted in parts of the world

EMC Corp. reported double-digit revenue growth for the third quarter and forecast another revenue gain in the fourth quarter despite global economic woes.

However, the company noted a dip in some areas at the end of the quarter and expects trouble ahead for the industry.

"We are seeing some signs of a slowdown in IT spending in many parts of the world, and I believe the slowdown will continue into 2009," said Joe Tucci, EMC's chairman, president and CEO, on a conference call Wednesday after the results announcement. Tucci said he expects IT spending overall to grow between 1% and 3% in 2009.

The company's revenue grew 13% from last year's third quarter to $3.7 billion, with 11% gains in both its information storage business and its RSA security division.

Net income according to GAAP (Generally Accepted Accounting Principles) was $411 million, or 20 cents per share, down from $492 million, or 23 cents per share, a year earlier. But not counting a special income-tax benefit and other one-time items, EMC had net income of $528 million, or 25 cents per share, up 14% from last year's third quarter.

The non-GAAP profit figure beat analysts' estimates of 19 cents per share, while revenue essentially matched the analysts' forecasts.

Sales gains in the U.S. lagged behind the rest of the world, with revenue growing 7% year-over-year in the U.S. compared with 19% for areas outside. The company got 46% of its revenue from outside the U.S. Revenue increased 20% in Europe, the Middle East and Africa; 19% in Asia-Pacific and Japan; and 27% in Latin America, EMC said.

For the fourth quarter, EMC forecast total revenue of $4 billion and earnings per share between 23 cents and 24 cents, both of which would represent gains over last year's fourth quarter. The company estimated non-GAAP earnings at 30 cents or 31 cents.

"Even with a challenging economic environment ahead, we remain confident and well positioned to compete effectively, continue winning business and outpace our peers in the marketplace," Tucci said in a prepared statement.

In the last three weeks of September, EMC saw a slowdown among some customers, which Tucci attributed to caution caused by the stock meltdown and the weak credit market. Some large enterprises postponed purchases, and some financial services companies held off on their spending amid a wave of consolidation, he said.

On a worldwide basis, sales to financial services companies actually grew modestly in the third quarter, though not for Wall Street investment banks. Commercial customers and small and midsize businesses also became cautious, Tucci said.

However, Tucci said he believes the continuing growth of data within enterprises will insulate storage, as well as virtualization and compliance, from an overall slump in IT spending.

Among EMC's product lines, sales of the high-end Symmetrix storage systems were flat, while the midrange Clariion line had 12% higher revenue than a year earlier, partly because of the launch of the Clariion CX4 line in August, said Chief Financial Officer David Goulden. Network-attached storage revenue rose 40%, with EMC gaining market share, he said.

The company's content management and archiving business had flat revenue, and EMC expects that market to continue to be affected by weakness in the overall enterprise software business, Goulden said. But revenue from professional services rose 23% from a year earlier, he said.

Tucci said he was pleased with the performance of EMC's VMware business, which on Tuesday reported third-quarter results above expectations and stuck to its earlier forecast for the fourth quarter. Despite a reorganization and hiring freeze at the virtualization software company, Tucci said EMC has no plans to spin off VMware.

In addition, EMC plans to strengthen its reseller relationship with Dell Inc., which accounts for more than 10% of EMC's revenue. The partnership may have gotten offtrack after Dell acquired storage-area network vendor EqualLogic Inc. earlier this year, Tucci said.

Copyright © 2008 IDG Communications, Inc.

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