EMC revenue misses mark, blames global IT spending dip

CEO Joe Tucci said EMC revenue missed the company's goals because of 'cautious' spending on IT last quarter.

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Blaming poor global economic conditions, EMC Corp. executives today said they fell short of their sales goals for the third quarter and lowered expectations for this quarter.

EMC's revenue of $5.28 billion was below the financial analysts' consensus expectation of $5.46 billion. Its net income of $626 million for the quarter also missed expectations.

EMC lowered its revenue guidance for the year to $21.6 billion to $21.7 billion. Its previous forecast was $22 billion to $22.04 billion. EMC revenue grew 6% and its profit increased 3% over last year, ending the company's 10-quarter streak of at least 10% gains in both areas.

"We were disappointed that we did not meet internal revenue expectations, and we interrupted our string of 10 quarters of top- and bottom-line growth," EMC CEO Joe Tucci said on the company's earnings call.

Tucci pointed to economic and political uncertainty around the world for the slump. He said most major markets in the world had lower economic growth in the third quarter than in the second, and businesses are spending less because they have less confidence in their governments.

Tucci said there was an "air of caution" around IT spending. He said EMC had expected global IT spending to increase 3% in 2012 over 2011, but now forecasts only 2% growth. He added that the vendor's 2013 forecast calls for modest growth in spending.

But Tucci and EMC president Dave Goulden claimed that despite the sales miss, they believe EMC gained market share in storage in the quarter. "We believe we are better positioned than our competitors," Goulden said.

Goulden said part of EMC's problems last quarter was that orders for midrange VNX storage arrays and Data Domain and Avamar backup products came late and were pushed into this quarter. He said several of those orders have been fulfilled in October, the first month of the fourth quarter.

Revenue of EMC's high-end VMAX storage system increased 5% year-over-year after a platform refresh, but the revenue dropped from the second quarter of 2012. Midrange storage -- mostly VNX, Isilon, Data Domain and Avamar -- was about the same as last year, following 10% year-over-year growth in the second quarter of 2012.

The EMC executives said they expect to take advantage of the growing cloud storage and flash storage markets to break their slump. They pointed to products that will roll out this quarter and next year -- including Isilon's OneFS Mavericks operating system, a "Project Thunder" PCI-based flash shared-storage appliance and "Project X" all-flash storage array -- as indicative of its product strategy.

Tucci said EMC will not cut back on product development in the wake of reduced earnings. "I will not cut R&D," he said. "What we are working on is too exciting."

Tucci: We're not divorcing Cisco

Tucci also declared that EMC's relationship with networking giant Cisco and its commitment to the vendors' Virtual Computing Environment (VCE) joint venture remain strong. There has been speculation that Cisco was unhappy with EMC after EMC-owned VMware acquired software defined networking startup Nicira last July, as well as rumors that EMC might acquire Cisco rival Juniper Networks.

"Some have called into question the viability of our relationship with Cisco," said Tucci, who added that he has been friends with Cisco CEO John Chambers for more than 20 years. "We are committed to working closely and cooperatively with Cisco, our premier partner. [SDN] complements networking infrastructure, and EMC has no plans to drive deeper into networking by acquisition."

Tucci said VCE was on track to generate $1 billion in annual revenue from sales of its Vblock integrated stack of EMC storage, Cisco servers and networking, and VMware software. "VCE is a top priority for EMC," he said.

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