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Data Storage Provider EMC Posts 35 Percent Rise in First-Quarter Revenues

Posted on: Friday, 16 April 2004, 06:00 CDT

Apr. 16--Powered by a trio of software acquisitions and a technology recovery that is picking up steam, data storage provider EMC Corp. yesterday registered a 35 percent jump in revenues and a fourfold increase in earnings for the three months ending March 31.

The first-quarter gains over last year's corresponding period came as EMC, the state's largest technology company, boosted its revenue growth projections for the April-to-June period beyond what analysts had anticipated. But in a move that disappointed investors, EMC kept its earnings guidance steady for the current quarter.

EMC shares dipped 18 cents to $13.02, a loss of 1.36 percent, in trading on the New York Stock Exchange yesterday.

Joseph M. Tucci, EMC president and chief executive, said in an interview that the Hopkinton company had increased its sales outside the United States to about 43 percent of overall sales, from 37 percent a year ago. Tucci said EMC ultimately will push to expand its international revenue share to about 60 percent, mirroring the non-US share of overall global technology spending. To do that, Tucci said, the company will beef up its sales force and employment around the world.

Tucci said the company had hired about 100 more workers in Massachusetts in the first three months of the year, raising its state payroll to about 7,100. Worldwide, the company increased its employment by about 900 to approximately 21,000 in the first quarter.

After soaring in the late 1990s but struggling through the first part of this decade, EMC has regained its footing with a strategy of surrounding its industry-leading storage hardware with channel partnerships, including one with Dell Inc., and acquiring software companies that tap the fastest growing storage market.

"EMC has one of the better, if not the best, visions of what customers need from a storage point of view going forward," said Roger W. Cox, research vice president at Gartner Inc., a research firm in San Jose, Calif. "They're climbing the next mountain, while too many other companies are climbing the mountain EMC has already climbed."

But while EMC has gained some market share in the past year, it still faces formidable competition from "portfolio" rivals, such as IBM Corp., Hewlett-Packard Development Co., and Sun Microsystems Inc., that can offer customers bundled packages of servers, software, and storage equipment, packages EMC can't match, Cox said.

EMC posted first-quarter net income of $140 million, quadruple its $35 million in the year-ago quarter. Its quarterly earnings per share topped analysts' expectations by a penny, jumping to 6 cents from 2 cents last year, after a 1-cent charge to cover the January acquisition of VMware Inc. EMC's first-quarter revenue climbed 35 percent to $1.87 billion, from $1.38 billion in the first quarter of 2003, though it only slightly exceeded revenues in last year's fourth quarter.

For the current quarter, EMC said it expects to earn 8 cents a share on revenues between $1.95 billion and $1.975 billion.

One of the most striking features of yesterday's financial report was the performance of VMware and a pair of other recent EMC acquisitions, Documentum Inc. and Legato Systems Inc. Together, the three rang up sales more than 30 percent higher than their combined total as independent companies a year ago. "The acquisitions are doing very, very well," said Bill Teuber, EMC executive vice president and chief financial officer. "We've embraced them, they've embraced us. And our customers have been voting with their pocketbooks."

Sales of the acquired companies' "multiplatform software," which runs on a variety of storage machines, surged 21 percent over the fourth quarter, while sales of software that runs only on EMC's machines fell 11 percent in the same period. "The acquisitions seem to be performing better than the core businesses," Cox observed.

EMC also rode the wave of a technology recovery that continues to gain momentum, though less robust than many had hoped. Gartner estimates spending on storage will grow 8 percent this year after a 6 percent increase last year. "The mood is significantly better," Tucci noted. "But this is not a V-shaped recovery" with sales bounding back to 1990s levels. "It's slow and steady as she goes."

Kaushik Roy, a Boston-based storage analyst for Susquehanna Financial Group, said the storage industry was benefiting from a number of trends: growth in data capacity at large companies, disaster recovery investments by small and midsize businesses, and new data storage requirements by regulatory agencies. "Storage will outgrow overall IT [information technology] revenue by a couple of percentage points this year," said Roy, a former EMC employee who said he still owns about 1,000 shares of the company's stock.

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