2nd UPDATE: EMC's 2Q Profit Down 43%, Though '09 View Upbeat
July 23 2009 - 9:53AM
Dow Jones News
EMC Corp.'s (EMC) second-quarter earnings slid 43% as
information-technology customers continued to pare spending, though
the company's outlook - its first amid the downturn - offered a
sign that market conditions may be stabilizing.
In its forecast for 2009, EMC projected results above analysts'
expectations, sending shares up 6.2% to $15.30 in pre-market
trading. The stock is up almost 38% since the beginning of the
year.
Second-quarter results also topped estimates.
"This marks another quarter of solid execution," said EMC
President and Chief Executive Joe Tucci in a prepared statement.
"When IT markets resume to more normal spending rates, we expect
EMC will return to generating double-digit revenue growth."
EMC has declined to give a formal outlook since the start of the
year due to the unclear economic picture. Expectations for tech
spending were murky at best as companies slashed budgets in the
face of the global slowdown.
But in offering some guidance on the company's prospects, EMC
signals that the tech market is at least returning to more
predictable conditions.
"We now have better visibility and more confidence in the second
half of 2009," said EMC Chief Financial Officer David Goulden
during a conference call to discuss results.
IT budgets for EMC's customers "firmed up quite a bit," Tucci
said, making the business more predictable.
Some level of full year guidance is likely viewed very
positively by investors, said Jefferies & Co. analyst Bill
Choi.
For 2009, EMC sees earnings of 82 cents and revenue of $13.8
billion, both including its pending $2.2 billion acquisition of
Data Domain Inc. (DDUP). Analysts surveyed by Thomson Reuters
projected 78 cents and $13.49 billion, respectively.
Also, third-quarter revenue is seen rising 2% to 3% from the
second quarter's $3.26 billion. Analysts anticipated $3.38
billion.
For its part, Hopkinton, Mass.-based EMC pushed aggressive
cost-cutting since the start of the year, announcing in January it
would eliminate 2,400 jobs to save $350 million. It said in April
it would reduce costs by another $100 million. It has asked
employees to take a 5% pay cut but didn't foresee additional
layoffs.
In the second quarter, EMC's earnings fell to $205.2 million, or
10 cents a share, from $360.1 million, or 17 cents a share, a year
earlier. Excluding restructuring and other costs, profit fell to 18
cents from 24 cents.
Revenue dropped 11% to $3.26 billion, or 8% excluding currency
changes. Revenue from VMWare Inc. (VMW), in which EMC holds a
majority stake, contributed $455 million to the top line.
Analysts polled by Thomson Reuters expected per-share earnings
of 16 cents on revenue of $3.2 billion.
Data Domain, which makes a technology used to reduce duplicated
files in data centers, should add roughly $200 million in revenue
in the third and fourth quarter of 2009 as it continues to post
revenue growth from last year.
EMC topped NetApp Inc. (NTA) in a bidding war for Data Domain as
both companies vied to take a leadership role in what is known as
de-duplication, an important growth niche in the data archiving
market.
Meanwhile, Tucci said that a trend developing among EMC
customers is a shift towards fewer data-center suppliers,
suggesting that customers are looking at their suppliers more as
partners.
"We believe this trend will benefit EMC," said Tucci.
-By Jerry A. DiColo, Dow Jones Newswires; 212-416-2155; jerry.dicolo@dowjones.com
(Melissa Korn and Kevin Kingsbury contributed to this
report.)