EMC Plans Cuts, Closures Before Economic Doldrums Hit

The company said it will cut about 2,400 positions and consolidate a number of facilities in a move that shows it is getting ready for the economic downturn.

EMC is luckier than most IT vendors that are looking at job cuts and restructuring in that its revenue is still growing and it is still profitable, even though those profits will get thinner.

So, despite the pain that the restructuring will cause to the people filling the 2,400 or so positions EMC said will be cut, the time may be right for the company to be proactive on the restructure and do it while things still look pretty good.

EMC on Wednesday said it expects fourth quarter 2008 revenue of $4 billion, or about 4 percent above the $3.8 billion it reported last year. It also expects earnings of 13 cents to 14 cents per share, after a 10 cents-per-share impact from the restructuring. Not bad, but below the 24 cents per share it reported last year.

EMC is more fortunate than most of the other companies going through restructuring and layoffs in that it is in the storage industry, an industry that sells products that are in demand even if business drops.

And it has a solid channel base that is enthusiastic about the company's technology and its partner support.

It also helps that EMC has diversified its business over the past few years, pushing hard to be a software vendor, a security vendor, a virtualization vendor, a document management vendor and a small business vendor, and succeeding by making its channel partners a big part of those pushes.

Thus, the cuts in head count and facilities seem to be a smart move because it shows that EMC can be proactive and get its house in order before it suffers a noticeable impact from the economic downturn.

And there will be some impact. Remember during the last downturn that EMC was the darling of Wall Street because everyone, including EMC itself, thought storage was recession-proof? We know better now. The company's sales dived, and there was talk about the company being acquired.

Now, what happens when EMC talks cuts and restructuring? Wall Street cheers, bidding the company's stock up by 6 percent the day after the announcement to $11.85 a share. That's still down from the 12-month high of nearly $18 per share, but better than most of its peers.

But it's tough out there. Analyst firm RBC Capital Markets expects EMC's fiscal year 2009 revenue to drop 8 percent compared with 2008.

The restructuring gives EMC time to prepare for more bad news down the road, and provides a cushion against what could be more painful cuts if it maintained the status quo.

Now contrast this to Sun Microsystems. Like EMC, Sun has great technology. Unlike EMC, it has consistently refused to acknowledge that the market is changing and then bend to reality. Sun's response to bad economic news has been to cut a few jobs here, then later on, a few jobs there, until employees are constantly looking over their shoulders. "Death by a thousand cuts" is how one of my Sun VAR buddies characterizes it.

EMC has proven over the years that it can bend as the IT market changes. This week shows it has learned from its experience and can bend before the winds of those changes hit.