EMC Revenue Up On Storage Sales, Profit Flat

EMC said Thursday that strong sales of its Symmetrix storage and content management and virtualization software boosted first-quarter revenue by 14 percent from the same period in 2005, but that profits were hit by stock-option expenses.

Net income for the first quarter, ended March 31, was US$272.5 million, or $0.11 per share, compared to $269.8 million, or $0.11 a share for the previous year’s quarter. However, stock-option expenses this year dragged down profit by $0.03, the company said. The option expenses were due to the cumulative effect of changes in accounting rules. Had EMC included stock-option expenses in last year’s first quarter, it would have earned profit of $182.2 million, or $0.07.

Excluding the stock compensation and other expenses, EMC’s net income for the first quarter of 2006 was $380 million, or $0.16 per share. This beat analysts’ forecast, which also excludes expenses, of $0.14.

Revenue for the first quarter was $2.55 billion, up 14 percent from $2.24 billion one year earlier.

EMC’s storage systems revenue grew 20 percent from last year’s quarter to $1.23 billion, which marks its strongest growth in that area in more than two years, said the company. Revenue was driven by sales of EMC’s Symmetrix DMX-3 tiered networked storage, which comprised more than half of its total Symmetrix systems revenue during the quarter.

Software licensing and maintenance revenue grew 11 percent to $925 million, fueled by sales of its Documentum enterprise content management and Smarts resource management software. Professional services, systems maintenance and other services grew 6 percent to $396 million. EMC President and Chief Executive Officer Joe Tucci said earlier this year that the company is focused on making software and services a bigger part of the mix for the company.

Sales for EMC subsidiary VMware, which provides virtualization software, surged 64 percent to $131 million.

Tucci earlier this year predicted that the storage market will undergo significant changes in 2006 due to the prevalence of emerging technologies and growth potential in new customer segments. He said EMC will focus on three key areas in particular—security, model-based resource management and virtualization.

On a conference call with analysts and media Thursday, Tucci reiterated those areas of focus and acknowledged some areas of the business where it could improve operations.

“Q1 is always our toughest quarter because our primary focus for the first two months is on installing products we sold in Q4, and Q4 is always a barn burner for us. For sure Q1 was no exception; we didn’t start to kick it in until early March,” Tucci said. “Revenue was a bit lighter than we would have liked.”

Tucci pointed to two areas where the company didn’t do so well: sales of backup and archiving software, and overall sales in the Asia Pacific and Japan (APJ) region.

“We are, and will, address these areas,” Tucci said.

For the APJ region, the company earlier this month appointed a new president to handle operations in the region and expanded its relationships for the region with Japanese computing powerhouse NEC as well as with Intel.

EMC said that disappointing sales of its backup and archiving software were a result of a shift in its sales force that allowed sales people who had sold only the archiving software to also sell content management software. This also contributed to the upswing in content management software.

EMC predicted revenue for the second quarter around $2.7 billion, and revenue in the range of $11.1 billion to $11.3 billion for the entire year. The second-quarter forecast is in line with analyst expectations, as polled by Thomson Financial, but the forecast for the year falls short. Analysts expected $11.6 billion.

-Shelley Solheim, IDG News Service

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