EMC cautiously optimistic about storage spending

EMC's profits were down compared with last year's third quarter but up from the second quarter of this year, leading it to forecast modest recovery in storage spending in 2010.

EMC Corp. beat Wall Street expectations for its revenue and earnings last quarter despite a drop from last year, and its executives forecasted an increase in spending through the end of the year and 2010 but not quite a return to 2007 levels.

EMC today reported revenues of $3.52 billion for the quarter, an increase of 8% compared with the second quarter of 2009. Net income was $298.2 million, an increase of 45 percent sequentially. However, those numbers were down from the same quarter last year when EMC reported revenues of $3.7 billion and net income of $393.4 million.

"We saw improved growth in North America, especially in storage, which is a very good sign," EMC CFO David Goulden said. However, he added, this didn't mean an increase in IT spending plans, but rather that customers were more comfortable spending their existing budgets.

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EMC CEO Joe Tucci said the financial services market was among industries showing the most spending increase. Overall "2009 is progressing pretty much as we expected," with a "bottoming out" in the second quarter and a stronger second half, he said. "We expect a slow but steady recovery [in 2010]," Tucci added. "IT spending will return to growth but will be below 2004 to 2007 historical levels."

This forecast matches a report also issued this week by TheInfoPro, which said 2010 storage spending will probably be an improvement over 2009, but that's not saying much.

Product breakdowns: Data Domain pulls in $105 million, V-Max ahead of schedule

EMC completed its $2.1 billion acquisition of data deduplication player Data Domain during the quarter. EMC reported that Data Domain revenues are up 40% over its third quarter 2008 numbers. In last year's third quarter, Data Domain reported revenue of $75 million, putting its third-quarter contribution to EMC at $105 million. That puts Data Domain ahead of EMC's previous forecast of $200 million over the second half of the year.

EMC also reported "double-digit" growth in its Avamar host-based deduplication software. Tucci listed backup, recovery and archiving among its four top opportunities heading into 2010, estimating the total market will be about $10 billion.

Wikibon analyst Dave Vellante says rationalizing the two main deduplication products in the portfolio will be crucial for EMC going forward. "When I listen to [former Data Domain CEO Frank] Slootman, he sort of underpositions Avamar – it's strong in VMware environments, where customers should be careful about target-based dedupe if their servers are I/O bound," he said. "Data Domain people tend to position Avamar for small environments and remote offices on the edge, but that's not positioning it in a way that's going to help customers the most."

Goulden said Symmetrix V-Max revenue is growing faster than expected, and now accounts for 50% of Symmetrix revenues. "Typically it takes three quarters before you're at 50 percent," he told Wall Street analysts during the earnings conference call.

"I'd like to know how many [V-Max] units they've shipped and installed" rather than percentage of revenue," Vellante said. He said he liked the fact that a shift to Intel processors in the V-Max cuts the cost of the platform, but "in my mind there's not a reason to buy V-Max without [Fully Automated Storage Tiering] FAST, unless you need more performance. Customers are excited about FAST and EMC will do well with it even though they're sort of late to the market with that feature."

Tucci also indicated EMC will continue to acquire companies, saying it would be a "consolidator" as M&A activity continues in the wake of the economic downturn. Vellante said EMC's focus for future acquisitions will probably be in content management and archiving, which has been among the most problematic business units for EMC in the last year. He also said EMC would probably look to services and data center management tools to better compete with IBM, Dell and Hewlett-Packard.

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