EMC's Q3 Report: Cracks In Dell Relationship Start To Show

Dell's portion of EMC's storage business dropped significantly while the rest of the company's channel partners enjoyed significant growth, EMC officials said on Wednesday.

Those comments came during EMC's third-quarter earnings call, during which it reported strong third-quarter revenue and a drop in earnings for the quarter which ended September 30.

EMC reported revenue of $3.7 billion during the quarter, up 13 percent over the $3.3 billion reported during the same quarter last year.

The company also reported earnings of $411 million, or 20 cents per share, down 16.5 percent from the $492.3 million, or 24 cents per share, it reported last year.

David Goulden, executive vice president and CFO of EMC, said that EMC's total channel sales, not including Dell, were up 20 percent year-over-year, and that its non-Dell channel partners accounted for nearly 50 percent of Clariion revenue.

Dell, on the other hand, accounted for 10.4 percent of EMC's total revenue, and slightly under 30 percent of Clariion revenue, Goulden said.

Dell has traditionally been EMC's largest channel partner, accounting for about one-third of EMC's revenue. However, Dell acquired EqualLogic early this year, giving it a product line and an indirect channel which competes with EMC.

When asked by analysts during the Q&A session following EMC's prepared statements about the 26-percent year-to-year and 10-percent quarter-to-quarter drop in Dell business, Joe Tucci, EMC's chairman, president, and CEO, said that the strong growth of the Clariion business came from two factors: a robust channel build-out and an increase in EMC's commercial and SMB business.

"On the other hand, we are very quickly and very actively working with Dell, and -- if you talk to (Dell Chairman and CEO) Michael Dell, he'll have the same statement -- we believe there's a lot more we can and should be doing together," Tucci said. "We probably got a little bit off track, and we're working hard to include the Dell channel on top of everything else we're doing."

Tucci said that as Dell acquired EqualLogic, EMC and Dell diverged more that they should have.

"And in addition to the channel build-out and the sales force build-out that we've done, we're also putting plans in place, very cooperatively with Dell, to make this relationship even better," he said.

The build-out of the commercial and SMB sales forces is being done with the channel in mind, Tucci said.

"We very rarely -- very, very rarely -- allow our commercial and SMB sales force to take an order," he said. "They're out there to create need, to help opportunities come to fruition faster, to help opportunities get larger. And they always, always work with channel partners."

EMC's overall business in the U.S. grew 7 percent over the same quarter last year, compared to growth of 19 percent in the rest of the world.

EMC's Clariion revenue was up 12 percent over last year compared to NAS revenue growth of 40 percent and a flat growth for Symmetrix, Goulden said.

RSA Security revenue was up 11 percent over last year, while professional services revenue grow 23 percent, he said.

Looking forward, Goulden said that the current environment is unpredictable, making forecasting the fourth quarter difficult.

"However, in discussions with customers and from what we are currently seeing in the marketplace, the focus remains on efficiencies, ROI [return on investment], and cost savings," he said. "So it looks like customer spending priorities will not change going forward."

Goulden said EMC expects fourth quarter revenue to be about $4.0 billion, with earnings of 23 cents to 24 cents per share. This compares to last year's fourth quarter revenue of $3.8 billion and 24 cents per share.

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