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Government shutdown slammed EMC storage sales

The U.S. federal government shutdown and cautious IT spending caused EMC to miss its revenue goals last quarter and lower expectations for the year.

The storage market leader reported revenue of $5.5 billion last quarter — up 5% over last year but $250 million below expectations – and its new guidance for the year of $23.25 billion is below analysts’ expectation of $23.44 billion. EMC executives blamed the shortfall on low U.S. federal government spending and customers outside of government waiting until the end of the quarter to place orders.

On the company’s earnings call today, EMC CEO Joe Tucci said he had “mixed feelings and emotions” about last quarter. “I am disappointed that we missed expectations,” he said. “On the other hand, I feel extremely good about our strategic positioning, products and service offerings. … We feel good that we continue to grow faster than most of our IT peers.”

Tucci said EMC’s federal storage business revenue declined more than 40% over last year — a huge drop because it was the government’s fiscal year-ending quarter, meaning it usually spends more on IT than in any other quarter.  Tucci said while that revenue did not go to another storage vendor and the lost deals may not be dead, government budget uncertainties will prevent EMC from making up the shortfall this quarter.

Outside of the government, Tucci said “customer caution and scrutiny of purchases continued,” forcing a backlog of orders that came in on the final day of the quarter. He said EMC received almost $300 million in orders on the final day – three times what it was expecting – and about $100 million of those orders were pushed to this quarter.

Despite that $100 million already on the books, EMC lowered its expectations for this quarter. EMC president David Goulden said he is still expecting a budget flush in the last quarter of the year but not as strong as in most years.

Like Tucci, however, Goulden said EMC is increasing its market share over competitors. “We are doing well relative to the market in all the segments we play in,” he said.”

EMC executives said sales of high-end VMAX arrays took the biggest hit from federal government spending slowdown.

Other tidbits from the call:

  • 70% of VMAX systems shipped had some flash storage in them
  • The next generation Atmos object storage system due to ship next year will be part of EMC’s Project Nile.
  • Around half of the VNX unified storage systems shipped last quarter were the new models launched in August.
  • The all-flash XtremIO array is scheduled to ship this quarter.
  • EMC will add Hadoop Distributed File System (HDFS) support to ViPR next year

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