"We have definitely not executed to our full potential in this market," Tucci said on the company's earnings call. Tucci said the company had an "abnormally tough" comparison between this quarter and the same quarter last year, when the CMA business reported 52% revenue growth. This quarter, revenues for this business unit were up just 5%, and most of that revenue came from maintenance and services rather than the sale of new software licenses.
Tucci and chief financial officer (CFO) David Goulden both referenced the consolidation in the archiving market of late in their remarks as part of the reason for the slowdown. Goulden said the recent spate of acquisitions, from Google Inc. and Postini Inc. to Autonomy Corp. and Zantaz Inc., may be responsible for "purchase pause" among customers.
Meanwhile, the storage systems business is booming, the company reported, especially in Clariion. The overall storage systems business is up 21% over the same quarter last year, to $3.12 billion. Within that, Goulden said, Clariion revenues are up 34%, both in the U.S. and Europe. Goulden attributed the growth to the increasing popularity of backup to disk, and sales of the EMC Disk Library virtual tape library (VTL) product, which is based on Clariion. (The company did not break out exact revenue numbers by product line within storage systems.)
Symmetrix, meanwhile, showed just 3% year-over-year growth despite the introduction of two new models in the last year. Bookings for the Symmetrix were flat compared to a year ago.
However, Tucci said the company is "clearly focused" on the midtier, citing the new Celerra NS-20 and NS-40 network attached storage (NAS) products. EMC also said that its market research indicates that IT spending in the U.S. has firmed up over the first quarter, after a spending slowdown that had been blamed by rival Network Appliance Inc. (NetApp) for shortfalls in that quarter.
Tucci said EMC is seeing NetApp and Hewlett-Packard Co. (HP) most often in the midrange market and that the company was continuing to be aggressive with pricing in an attempt to take share. Tucci also said better multiprotocol support in the new NAS boxes would make them more competitive. EMC plans to introduce another, smaller model in this product line, the NS-10, similar to the CX-10.
Daniel Renouard, analyst for Robert W. Baird and Co., inquired about the risk of potential "cannibalization" of low-end Clariion models by the new Celerra systems, to which Tucci flatly responded, "I don't really care. It doesn't matter if we sell Clariion or [Celerra] to me."
Meanwhile, Tucci also indicated that startups in this space are appearing on EMC's radar screen. "Our new midtier NAS strategy will put heat on … a number of storage startups that have been attempting to make noise lately in the storage marketplace," he said. (See EMC, HDS kick off thin provisioning cage match, July 18.)
Wall Street analysts also indicated some trepidation over the release of a new Symmetrix product, the DMX-4, with general availability slated for August, given last year's inventory problems that stalled delivery of the DMX-3 and put a dent in revenues for the company.
"How does the availability of this product at the back end of an already back-end-loaded quarter not increase risk?" asked Laura Conigliaro of Goldman Sachs Group Inc.
In response, Tucci said the transition between the DMX-3 and DMX-4 is not as major, and that the company had "learned from [the] missteps" when it comes to inventory for new products.