Article

EMC braces for IT spending declines

Beth Pariseau
After giving a "respectable" fourth quarter and full-year earnings report Tuesday morning, EMC Corp. CEO Joe Tucci says he expects the global economic crisis to get significantly worse before it gets better.

Tucci and CFO David Goulden say EMC expects global IT spending to decline between 4% and 9% this year, with the most dramatic slowdown to come between the end of 2008 and the current quarter. Tucci says EMC came in just shy of its earnings forecasts for the fourth quarter and full year thanks to a "mini-budget flush" in the fourth quarter.

    Requires Free Membership to View

More on storage vendors
EMC earnings point to looming storage spending slowdown
 
Storage industry braces for 2009 spending slowdown

Storage users weather the Wall Street blues

Storage Outlook '09: SSDs, networking and the economy
EMC reports revenue of $4.02 billion for the fourth quarter of 2008, up 8% vs. the third quarter and up 5% compared to the fourth quarter of 2007. Full-year revenue of $14.88 billion for 2008 missed EMC's forecast by approximately $100 million.

Tucci says the drop-off in the first quarter of this year will be steeper than usual, and the company doesn't expect much of a recovery before the second half of the year. Neither he nor Goulden gave specific growth outlook numbers or revenue guidance.

Tucci says conversations with EMC's customers indicate that companies are "focused on driving their own restructuring…driving complexity and cost out of their environments…and demanding quicker ROIs." By the second half of the year, Tucci says he expects that at least some customers will have "gotten restructuring behind them and come to grips" with the economy, and begin spending again.

This outlook is considered optimistic by storage analysts. "I hope he's right," says John Webster, principal analyst at Nashua, N.H.-based Illuminata Inc., who wonders if companies will turn to free open-source tools in lieu of proprietary products. "IT is stressed and under pressure. Commercial IT has watched from the sidelines, but I wonder if, in a down economy, a CIO might not look over the fence at open source."

Brian Babineau, an analyst at Milford, Mass.-based Enterprise Strategy Group, points out that a resurgence in IT spending depends on a recovery of credit markets, which so far haven't responded to government bailouts by increasing lending. "Much of the IT market depends on the credit markets and, without it, the decrease in spending could be much worse than any one predicts," he says.

New products planned for 2009

As part of the 2009 outlook, Tucci cited product releases EMC plans this year, including a Symmetrix enterprise system upgrade, offerings in unified and entry-level storage, data deduplication products for primary storage and backup, enhanced thin provisioning, "green" features such as drive spin-down and continued development of solid-state drives (SSDs). He mentioned a new product in the compliance archiving space, but didn't say whether it would be hardware or software.

Symmetrix revenue was down 9% in Q4 year-over-year, but was up 2% for the year overall. EMC explained the quarterly decline as a "tough compare" with the first full quarter of DMX-4 shipments. Webster says he's unsure what to expect from a further Symmetrix release. "Another turn of the crank for Symmetrix?" he asks. "How many times can they turn that crank and get sausage out?"

Midrange Clariion revenue, meanwhile, was up 6% sequentially and 11% year over year. Dell accounted for approximately 25% of Clariion revenue, while other channel partners supplied close to 50% of Clariion revenue.

Financial analysts say they saw the new Clariion distribution strategy as key to EMC's ability to weather the economic storm. "EMC came into 2008 heavily dependent on a two-pronged distribution strategy that hinged on its own direct sales force and Dell for a majority of revenue," wrote TBR analyst Allan Krans in a note to clients Tuesday morning. "This dependency left EMC in a vulnerable position should either enterprise spending or Dell's contributions begin to decline, both of which have occurred over the course of the year."

Revenue from unified storage products such as the Celerra NS20 and NS40 increased 40% during 2008 and will probably be EMC's bread and butter this year, say analysts. Primary storage dedupe is also identified as a potentially big opportunity. "There's a big market demand for dedupe for primary storage, whether or not products can actually fulfill that promise," says Webster.

"[ESG]'s outlook is based on companies rationalizing investments to deal with data growth and minimal budgets," says Babineau. "Technologies with very fast ROIs [that] mitigate downstream impacts on data growth are where companies will place their IT dollar bets -- things like server virtualization and deduplication will float to the top of investment priorities."

Related Topics: Storage vendors, VIEW ALL TOPICS

There are Comments. Add yours.

 
TIP: Want to include a code block in your comment? Use <pre> or <code> tags around the desired text. Ex: <code>insert code</code>

REGISTER or login:

Forgot Password?
By submitting you agree to receive email from TechTarget and its partners. If you reside outside of the United States, you consent to having your personal data transferred to and processed in the United States. Privacy
Sort by: OldestNewest

Forgot Password?

No problem! Submit your e-mail address below. We'll send you an email containing your password.

Your password has been sent to: