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EMC 'sitting on Fort Knox' sparks acquisition talk

EMC attributed solid second-quarter earnings to new storage product features, like virtual provisioning and data deduplication, leaving it with a pile of cash to make acquisitions.

EMC Corp. beat Wall Street analysts' estimates and many of its rivals struggling in a tough macroeconomic environment with its second quarter earnings today. CEO Joe Tucci attributed much of the healthy sales growth to new storage products focused on capacity and power efficiency.

These new features, introduced by EMC over the last year, include virtual provisioning, drive spin-down in the Clariion disk library, virtual provisioning and the inclusion of SATA disks in Symmetrix high-end disk arrays and a new release of Avamar data deduplication software.

Overall revenue growth was up 18% year over year for a total of $3.67 billion. The Wall Street consensus estimate was $3.56 billion. Net income was $577 million, up 20% over last year's second quarter. It marks EMC's 20th consecutive quarter of double-digit growth.

EMC is sitting on Fort Knox, and Quantum is dirt-cheap and hungry.
David Russell,
analystGartner Inc.
Healthy sales leave the company in a strong cash position with $8.1 billion in its coffers, $4.6 billion of which is tied up in VMware or overseas. Still, around $3 billion in spending money has the company licking its chops for more "tuck-in" acquisitions, according to chief financial officer David Goulden.

Analysts say there are several good fits for acquisition floating around in the market, especially data deduplication VTL partner Quantum, which has seen its market value depreciate over the last several quarters. "EMC is sitting on Fort Knox, and Quantum is dirt-cheap and hungry," said Gartner analyst David Russell. "The idea of EMC owning magnetic media other than disk is also less far-fetched after [the] Iomega [acquisition]."

Another area of likely expansion for EMC is in systems management, where it has already folded in ITIL management startup Voyence and network management startup nLayers. "They may be looking for where they can bring Smarts," said ESG analyst Brian Babineau. "They might go for a bigger company, like BMC, that they can plug Smarts into, or another plugin like nLayers, maybe something that does database performance management."

Among the efficiency products leading the sales charge this quarter, Avamar data deduplication software was the highlight, with sales up "triple digits" over the same quarter last year and inventory for the quarter completely sold out, Goulden said. He attributed this growth to the appeal of data dedupe as users try to cut storage spending, as well as the release this quarter of Avamar 4.0 and Avamar Data Store 2.

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Avamar Data Store 2 doubles the capacity per server node up to 32 TB, which EMC claims will support up to 250 daily full backups of VMware, file servers and remote-office data. In addition to remote support and notification, Avamar 4.0 added support for 64-bit Red Hat Linux 4, and expanded client support for SQL, Vista, NetWare native client, Novell Storage servers and Novell Open Enterprise servers.

According to Russell, this growth can mostly be attributed to exploding demand for data dedupe across the industry. "They just rode the wave," he said. But EMC also refocused its overstuffed backup portfolio, with the help of its OEMing of Quantum data deduplication vitual tape libraries (VTL), around the same time as the Avamar 4.0 announcement, which was probably also a factor, Russell said.

"Before you were seeing them saying, 'Let's take out TSM in the data center with this,'" he said. "They seem to be more focused now on Avamar as an SMB and remote office product, and under more stringent conditions they can still sell into the data center. It means the direct sales force isn't chasing its tail with long proof-of-concept tests."

Demand for power-efficient solid-state disks in the Symmetrix array is also "growing nicely," according to Goulden, though he didn't offer further specifics. Clariion, however, was up only 8% year over year, compared to 19% year-over-year growth in the first quarter. Tucci attributed this to users waiting for a Clariion refresh, which sources have indicated will be happening this August.

EMC updated its outlook for the year, saying that its earnings would exceed previous estimates of $15 billion.

VMware: First earnings call after departure of CEO

VMware held its first earnings call after the ouster of CEO and co-founder Diane Greene last night, and despite the fact that server consolidation is also a data center efficiency play, the results had Wall Street in consternation. Before her departure, Greene had revised VMware's yearly growth outlook to "slightly below" previous forecasts of 50%. Newly appointed CEO Paul Maritz said that now, it's looking like that outlook will be somewhere between 42% and 45%, disenchanting news for Wall Street.

While analysts on both earnings calls were frustrated with the lack of further details on VMware's strategy under Maritz, he did hint at the company's general direction from now on: cloud computing. "Virtual infrastructure technology has a lot of potential to build and optimize the cloud," he said. "It also can be an on-ramp to the cloud" for customers, because it's easier to move virtualized workloads back and forth between the cloud and company networks."

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