EMC: 4Q Sales Up, Earnings Down, Channel Stronger

EMC Tuesday reported its first-ever $4 billion-plus quarter, with revenue for the fourth quarter ended Dec. 31 of $4.02 billion, up 5 percent compared with the $3.8 billion it reported during the same quarter of 2007.

However, income dropped compared with last year. The company earned $288.0 million, or 14 cents per share, during the quarter, down from the $526 million, or 24 cents per share, it earned last year.

For 2008, EMC posted total revenue of $14.9 billion, up 12 percent from the $13.2 billion it reported for 2007. The company earned $1.3 billion, or 64 cents per share, in 2008, down from the $1.7 billion, or 77 cents per share, it reported for last year.

The channel played a bigger role than ever during EMC's most recent quarter, said Don Goulden, the company's executive vice president and CFO.

"Clariion sales through channels other than Dell were up 17 percent in Q4 and up 19 percent for the year," Goulden said. "These channel partners now represent close to 50 percent of Clariion revenues."

Dell, which is EMC's largest reseller partner, accounted for 10.9 percent of EMC's total revenue and about 25 percent of Clariion revenue during the quarter. In the third quarter, Dell accounted for10.4 percent of EMC's total revenue and slightly less than 30 percent of Clariion revenue.

Dell traditionally has been EMC's largest channel partner. However, Dell acquired EqualLogic early this year, giving it a product line and an indirect channel that competes with EMC.

Allan Krans, senior analyst at Technology Business Research, wrote in a research report that he expects software to remain a relatively stable business for EMC.

"But with the maturation of its numerous software acquisitions and the weak economy, growth will be difficult to achieve," Krans wrote.

Krans also wrote that EMC's renewed efforts to foster partner distribution and build small and midsize client bases will be key to weathering the economic slowdown, as a dependency on its own direct-sales force and Dell for a majority of revenue leaves it vulnerable should either decline.

EMC mitigated the effects of both threats by focusing more on the small- and midsize-business market and nurturing relationships with channel partners, Krans wrote.

"EMC's channel realignment [is] most visible in the Clariion business, which is now a majority channel-focused enterprise designed to meet SMB requirements. . . . With a Symmetrix business that is likely to remain flat to declining due to the slowdown in enterprise spending, continued traction in channel-led Clariion revenue will be a critical enabler of hardware revenue growth," he wrote.

EMC's Clariion product line sales were up 6 percent during the fourth quarter and up 11 percent for the entire year, EMC's Goulden said. Its NAS business was up 40 percent for the year. However, Symmetrix sales dropped 9 percent in the fourth quarter over last year while rising a mere 2 percent for the year overall.

In terms of its other business, Goulden said revenue from EMC's content management and archiving business fell 12 percent during the quarter compared with last year and was up 2 percent for the year, in part due to the weakness in the enterprise software market this year.

"Going forward, we are focusing on content management and archiving solutions that deliver the most immediate ROI for customers, and where we believe we will see good opportunities in 2009, particularly for our compliance and e-discovery solutions," he said.

EMC's RSA Security revenue rose 5 percent for the quarter and 11 percent for the year, Goulden said.

The company's global services revenue saw revenue rise 9 percent for the quarter and 21 percent for the year, he said.

Goulden said EMC expects the global economy to be much weaker in 2009 than in 2008, which will put pressure on global IT spending, which he estimated would fall in the mid to high single digits percent compared with 2008. However, that weakness will happen mainly in the first half of the year.

"As we think about the flow of IT spending this year, it looks like much more of the spending will take place in the second half than usual," Goulden said. "Customer uncertainty about 2009 will result in a seasonally weaker-than-normal first half.

"Things may start to settle out in the second half as everyone adjusts to the new economic reality and visibility into the rest of 2009 improves," he said. "In addition, activities like government stimulus packages and companies being further along in completing their restructurings may also begin to have a positive impact. As a result, spending in the second half should be considerably stronger than the first half."

EMC's recently announced restructuring moves could cut costs by $350 million this year and $500 million next year, Goulden said.

Joe Tucci, EMC chairman, president, and CEO, said he is happy with the fourth-quarter results but a bit disappointed with the results for the entire year.

"I am disappointed that we missed our $15 billion revenue target by a little over $100 million," Tucci said.

Tucci expanded on Goulden's outlook for 2009 and said that customers are focused on their own restructuring, cost reductions, driving complexity out of their environment, implementing their strategic initiatives, and taking advantage of the many upcoming technology trends such as virtualization.

To that end, EMC has developed a robust product road map, Tucci said.

In storage, the company plans to introduce new Symmetrix products, unified NAS/SAN arrays, entry-level products, and an expansion of its data de-duplication product line, including the ability to de-duplicate primary storage, Tucci said.

EMC also plans to enhance the thin-provisioning capabilities of its products, add new "green" IT features such as disk spin-down capabilities, and add new solid-state disk and flash storage technologies, he said.

EMC's RSA Division plans to introduce an Entitlement Policy Manager, a new release of its Envision security information and event management product, enhancements to its data loss prevention product suite in collaboration with partners like Microsoft, and Authentication Manager, the latter of which will merge elements of the company's identity protection and verification suite, Tucci said.

In the content management market, EMC plans to introduce a product for compliant archiving, expanded capabilities around collaboration and social networking for the enterprise, and a new case management framework to make it easier for partners to build business processes on top of EMC's Documentum platform, he said.

Due to the current macro-economic conditions and limited visibility, EMC did not offer revenue, earnings, or other financial outlook for 2009.