EMC Reports Sales, Earnings Down, But Says Economy Bottoming

Joe Tucci, EMC's chairman, president and CEO, said that the economy is at or very near the bottom from an IT spending point of view, and that the second half of 2009, especially the fourth quarter, holds much promise for a recovery.

EMC on Wednesday reported revenue for its first quarter, which ended March 31, of $3.2 billion, down 9 percent from the $3.5 billion it reported in the first quarter of 2008.

The company earned $194.1 million, or 10 cents per share, in the first quarter of 2009, down from the $251.6 million, or 12 cents per share, it reported last year.

Sales were down pretty much across the board for EMC. Storage product revenue fell by 30 percent compared to last year, while storage services revenue fell 2 percent. Both its content management and archiving and its security business sales fell about 6 percent.

EMC's sales in the U.S. were especially hard hit, with revenue dropping by about 16 percent compared to last year, EMC said.

The economy took its toll on EMC, said David Goulden, EMC executive vice president and CFO.

For instance, Goulden said, sales of the company's flagship Symmetric storage array line fell 25 percent compared to last year, while sales of its midrange Clariion line fell 18 percent. "These results from our two largest product lines reflect our exposure to weak enterprise spending," he said.

The good news, Goulden said, is that the company's channel-related business did better than expected, and so the drop in sales is mainly the result of macroeconomic problems.

EMC's biggest channel partner, Dell, accounts for about 10 percent of EMC's total sales, and about 26 percent of its Clariion revenue, which was up from the fourth quarter of 2008, Goulden said.

Tucci said that EMC continues to forge tighter relationships with partners such as Cisco Systems, Intel and SAP on the technology side; Arrow, Avnet, CDW and Ingram Micro on the channel side; and Fujitsu on the systems side.

"And yes, with Dell," Tucci said. "[Dell's Chairman and CEO] Michael Dell and I, with our collective teams, have been spending considerable time ensuring our mutually important alliance is back on track."

Tucci said the first quarter was a tough one from an economic point of view, with customers focused on keeping their current infrastructures. As a result, customers typically either have no firm budgets in place, or those budgets now have new rules for spending approvals. But by the second half of the quarter, the new procedures were in place, making the results more predictable.

"But I don't want to mislead you," he said. "IT budgets are still tight, and customers are buying only what they must have and need for today. But they are proceeding with projects that have good ROIs, projects that drive productivity and are truly strategic and help them save dollars."

Tucci also said that the economy is at or very near the bottom from an IT spending point of view, and that the second half of 2009, especially the fourth quarter, holds much promise for a recovery.

Tucci said he believes that Q2 will continue to be sluggish. "A little more predictable, but sluggish. Why sluggish? I believe customers will continue with their 'just enough, just in time' IT spending patterns. They, too, are looking for signs of improvement. And while there is light at the end of the tunnel, they will likely wait a bit and continue to be cautious."

EMC's best guess about global IT spending in 2009 is that it will fall by very high single digits or low double-digits, Goulden said.

"In terms of linearity for the year, it looks like Q2 spending will be flat with Q1 spending, and we continue to expect the second half of 2009 to be stronger than the first half," he said. "This is not an economic prediction, but more a belief that it looks like customers will end up spending more of their 2009 money in the second half than in the first half."

Historically, this has been the case, Goulden said. "But we think it will be even more pronounced this year as customers will have better visibility in their budgets and be further along in their own construction programs and broader stimulus packages should be on their way."

Going forward, Goulden declined to give specific guidance for the second quarter or the remainder of the year. However, he did say that while sales volumes and customer pricing packages will lead to lower margins in 2009 compared to 2008, EMC's profitability will show improvement in the second half of the year.