EMC Bucks Q2 Trend.
Software sales at EMC were little affected by the weak customer demand seen by other suppliers such as Veritas Software Corp, and this was in part because excluding its Documentum content management software, EMC's software mix involves less large enterprise-wide deals.
The picture of high-end customers slowing spending is reinforced in part by a sequential drop in sales of EMC's high-end Symmetrix arrays.
EMC CEO Joe Tucci said: "There was a lot of noise this quarter about a broad-based end-of-June slowdown. To this end, let me emphatically state that with the exception of less than a handful of deals at Documentum we did not see this. We did not see big deals pushed."
For its second quarter ended June 30, 2004, the storage hardware and software vendor reported net income of $193m or $0.08 per share up 136% year-on-year, on revenue of $1.97bn, up 33% year-on-year. EMC's acquisitions of Legato, Documentum and VMWare, accounted for 14% growth. Excluding those, core revenue growth was 19%. Currency effects lessened, but still boosted revenue by 4%.
EMC again sold out of its mid-range Clarrion disk arrays during the quarter, and total Clarrion hardware and software revenue was up 43% year-on-year. The company now has an order backlog worth "tens of millions" of dollars.
High-end Symmetrix-related revenue was not so strong - up only 5% year-on-year, and down 3% sequentially. Incorrect forecast of disk mix, and strong performance by IBM in the mainframe market contributed to this, EMC said. The impending launch of high-end hardware refreshes by Hitachi and IBM have had little affect on customers according to EMC, because the huge majority are not concerned with performance improvements to disk arrays that are already much faster than they need.
Revenue related to Legato backup software was up 13% year-on-year, and Documentum content-management software revenue was up 14% year-on-year. VMWare, still in early growth start-up mode, saw revenue up nearly 200%.
But Documentum's software and services revenue was down 4% sequentially, and the division is certainly subject to the high-end software squeeze.
"It's a little bit of the software, especially if you go for the bigger enterprise license approach - it's kind of software' turn in the barrel," Tucci said. "The industry's beat the hell of the hardware players and the kind of core software we ship with our hardware and even our open side....the software companies are now getting a little bit squeezed."
Veritas's recent revenue shortfall was not principally caused by EMC's success with its competing Legato backup software, Tucci said, because despite its growth, EMC's backup sales are still minor compared to those of Veritas, and will be for some while.
"Compared to Veritas's number, we're still small. Obviously we're pleased with the [Legato] license growth and we actually believe we can keep that kind of growth up, which I guess if you did it long enough and hard enough it would eventually be material. But I don't believe that Legato's gain this quarter was necessarily what caused Veritas to miss. I think there are other factors there."
EMC's guidance for the third quarter was for flat to slight revenue growth to around $2bn, and EPS of around $0.08 to $0.09, compared to Wall Street consensus of $0.09. Full-year target of $8.1bn and net income of $850m is unchanged.
Others incorrectly assumed the acceleration of the IT market would continue, and this is not happening, Tucci said. EMC sees a "a slow but steady improvement in spending", and repeated its forecast that IT spending will rise about 4% this year, with storage spending growing 7%.
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|Title Annotation:||quarter 2|
|Date:||Jul 21, 2004|
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