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EMC revenue down, employees asked to take pay cut

Revenues are down sharply and EMC is trying to cut costs to maintain margins, but sales of the Celerra multiprotocol arrays continued to grow during the first quarter.

The global economic downturn hit EMC Corp. last quarter, as the storage giant reported that its revenues declined 9% and profit declined 23% compared to a year ago.

EMC CEO and president Joe Tucci said there'll be no more layoffs beyond the 2,400 announced at the start of the year, but he has asked employees to take a 5% pay cut for the remainder of the year.

Tucci said he thinks IT spending has hit the bottom and that storage has been affected less than the network and server areas, but EMC execs don't forecast an uptick until the third quarter.

EMC's first quarter revenue of $3.15 billion was down from $3.4 billion in the same quarter a year ago, and below the company's internal goal of $3.2 billion. Net income was $194.1 million, down from $251.6 million in last year's first quarter.

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"I believe we are at or near the bottom" of IT spending for the year, Tucci said. "[The second quarter] will continue to be sluggish—a lot more predictable, but sluggish—there's a light at the end of the tunnel, but [customers] are likely to wait a bit and be cautious."

Tucci said he sent a letter out this morning "asking all EMC exempt employees to join management and take a temporary 5% salary cut." Tucci said the salary reductions are an effort to avoid more layoffs.

He said spending in January and February was "extremely slow" as many companies did not yet have their 2009 budgets set, and those who did had new policies requiring upper management approval on IT purchases. "This led to longer sales cycles and delayed and reduced deals," Tucci said.

"IT budgets are still tight and customers are only buying what they must have for today," he said. EMC is still predicting stabilization and the beginnings of recovery toward the end of 2009, but predicts IT spending for the year will be down in the "very high single digits to very low double digits."

By the fourth quarter there should be some signs of recovery, according to CFO David Goulden. "But we really don't have a handle on how big the uptick would be or when it would happen," he said.

Storage industry analysts took contrasting views on this outlook. "If we're watching the economy bottom out as we speak, there's probably going to be pent-up demand for infrastructure that will show up later this year," said John Webster, principal advisor at Nashua, N.H.-based Illuminata Inc. "People have projects they need to do, and they're not cancelled, just put off until they understand what the economy will be like."

On the other hand, Arun Taneja, founder and consulting analyst at Hopkinton, Mass.-based Taneja Group, pointed out that the decline has been felt by storage companies much later than the broader economy, which began its decline last fall. "My gut would say there's another quarter of decline before storage really starts to come back up," he said. "If there's a delay in decline on the front end, logic seems to dictate there'd be a delay in recovery on the back end."

Brian Babineau, senior analyst at Milford, Mass.-based Enterprise Strategy Group, said his firm expects spending to begin picking up around mid-year.

"Users may see budget flushes at the halfway point of the year in June, or at least have more insight," he said. "The second quarter could be good if things in June pick up."

Celerra revenues a bright spot

EMC's biggest storage product lines, Symmetrix and Clariion, showed double-digit revenue declines in the first quarter. Tucci blamed the slowdown in Symmetrix sales partly on the launch of the Symmetrix V-Max last week, but "most of it was the global economic environment."

Meanwhile, the Celerra multiprotocol array had its "eighth consecutive quarter of double-digit revenue growth," Goulden said. He said Celerra's growth was a result of "good customer response to our recent update" of the NS Series in February.

Tucci said Celerra had taken market share from competitors in the network-attached storage (NAS) and iSCSI market despite the slow quarter. The main competitor for that product is NetApp, and Illuminata's Webster said he saw this report from EMC as a "worrisome sign for NetApp.

"I think Celerra has been tied fairly successfully to VMware," he said.

Analyst Taneja countered that unstructured data is growing faster than data stored on block-based systems and has been for years. The Celerra numbers could be an indication that NAS will grow overall in the market at large. "There's no indication at this point in time that EMC has taken percentage away from NetApp," he said.

Tucci sees vertical vs. horizontal showdown in Oracle-Sun deal

Tucci said EMC will continue to partner with Oracle Corp. following its acquisition of EMC competitor Sun Microsystems Inc. "The name of the game has always been co-opetition," he said, while acknowledging Oracle is "building a vertical stack, and they'd like you to use their vertical stack."

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