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EMC sees IT spending recovery, plans further cloud storage push in 2010

EMC plans to invest heavily to further build products in what it considers billion-dollar market opportunities: cloud storage and services offerings, as well as storage and server virtualization and data backup.

EMC Corp. today said its fourth-quarter sales were better than expected and gave an optimistic outlook for 2010 with plans to expand its product lines in the areas of cloud storage, virtual data centers and data backup.

Overall revenues for last quarter were $4.1 billion, compared with EMC's forecast of $4 billion. The revenue was an increase of 17% sequentially and 2% year over year. The results also beat Wall Street estimates, but financial analysts had anticipated a strong quarter for EMC following reports of earnings increases at IBM's storage division and disk drive supplier Seagate Technologies Inc. last week.

David Goulden, executive vice president and chief financial officer (CFO) at EMC, said the company had seen evidence that priorities are shifting among customers along with the increase in purchasing. Specifically, Goulden said, the EMC consulting business "tends to be a leading indicator of customers' IT plans," and that business unit is seeing new initiatives rather than a strict focus on cost cutting. "Customers are willing to put incremental spending toward new technologies," he said on EMC's conference call with analysts.

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EMC CEO Joe Tucci said the company would increase R&D spending by 20%, with focus on four areas he identifies as billion-dollar opportunities for the vendor this year: data center virtualization, building out service provider infrastructure, offering more cloud services, and next-generation data backup and archiving.

"Customers continue to make progress recovering from the effects of the 'Great Recession,'" Tucci said. "They are turning to virtualized infrastructures in record numbers," he added, citing VMware's earnings report Monday night, which included a 27% sequential increase in license revenue for the quarter.

EMC also reported a 13% increase in high-end Symmetrix and a 15% sequential increase in midrange Clariion storage system revenues from the previous quarter.

Goulden said Dell's contribution to Clariion revenues was up 20% from the previous quarter, and Dell accounted for 16% of total Clariion revenues. Last quarter the two companies announced they were switching to an OEM model for their relationship rather than a combination of OEM and reseller sales models. Dell OEM revenues accounted for 15% of overall Clariion revenues last quarter.

Goulden said EMC's Mozy backup service now manages more than 25 PBs of customer data, and "will also expand online backup to a broad set of personal cloud services" in the coming year. Tucci added that EMC will also be working with service provider partners on initiatives, including "PC backup as a service, storage as a service, archiving as a service, parts of our content management and security product lines as a service, and desktop as a service – the potential list goes on and on."

EMC reported that Data Domain and Avamar revenues from data deduplication products were each up 50% for the quarter, and Data Domain gained 600 new customers in the quarter, including 300 of which were new to EMC. Tucci pledged that investment and new product offerings in "next-generation backup and archive" would continue in 2010.

Overall, the forecast for 2010 is for 14% overall growth and total projected revenues of $16 billion. Tucci concluded, "we expect economic recovery to continue, but there's still some caution and potential for choppiness as job recovery lags."

Analyst view: EMC's ambitious forecast and technology reality

Arun Taneja, founder and consulting analyst at Hopkinton, Mass.-based Taneja Group, said the bullish outlook corresponds with what he expects in terms of a general recovery and return to business in the enterprise this year, but he said EMC's forecasts are also ambitious. "Their base is already so large, it's not like growing from $100 million to $114 million," he said. "I would expect most of that increase to come from their backup business and VMware. Fourteen percent in the traditional array business would be outrageous."

Taneja said he has his doubts about the growth of cloud storage, particularly the concept of private clouds. "Fundamentally, as far as the idea of taking non-mission critical data and putting it into a public cloud service, there's no doubt in my mind companies are going to get more and more comfortable [with doing that]," he said. However, he said he saw this type of exercise mostly limited to file and object data rather than block storage, which still makes up the bulk of EMC's storage business today. "What is the private cloud infrastructure for block-based data?" Taneja asked. "Nobody has defined that yet, but people are mouthing off like it's been here for 10 years."

On the backup front, Taneja said spreading data deduplication throughout the infrastructure and closer to the data source will become more important in 2010, along with continuous data protection technologies. "Ultimately, I think most backup will use source-based intelligence like Avamar," he said. "Along with continuous data technologies, it could kill the concept of the backup window, which means one big backup issue gone."

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