Despite Merger Chaos, EMC Partners Bullish On Q4 Earnings

EMC channel partners are eager to see reassuring signs from EMC on Wednesday, when it will announce its fiscal fourth quarter earnings amid uncertainty around the company's pending merger with Dell.

Since Dell's $67 billion deal to acquire EMC was announced in mid-October, the value of EMC shares has declined about 15 percent, and recently dipped below the $24.05 per share offered by Dell in the deal. The company's market capitalization is now slightly less than $48 billion.

Michael Thomaschewski, director of infrastructure at Long View Systems, a Calgary, Alberta-based EMC partner, said partners want to see "a solid quarter, good results, and a high-level update on the progress made as part of the merger."

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"One thing that would calm the market, but isn't likely to be addressed, is a commitment to customers' investment in their portfolio," Thomaschewski said.

Aaron Cardenas, CEO of P1 Technologies, a Manhattan Beach, Calif.-based EMC partner, said he sees EMC as holding its own, despite the turmoil around the deal.

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"EMC is still the big boy in the market," said Cardenas. "Nimble [Storage] was supposedly hurting them; now they are hurting. Pure [Storage] was supposedly hurting them; now they are hurting. NetApp hasn't done anything in a long while as the No. 2 in the market. This leads me to believe that EMC is doing just fine despite all the chaos."

Investors unsure of what to make of the VMware tracking stock Dell plans to issue as part of the transaction have punished VMware shares, which have been driven down 40 percent since the acquisition was announced.

VMware is 81 percent owned by EMC, and it's a key component of the Dell acquisition bid. USA Today speculated recently that the VMware tracking stock to be issued by Dell as part of the transaction and pegged at $9.10 a share could now be essentially worthless.

Still, none of the turmoil is likely to result in significant changes to the terms or timeline of the acquisition, said one analyst, who told CRN that he's spoken with Dell founder, Chairman and CEO Michael Dell.

"Some pundits are saying VMware will be sold off," said the analyst, who did not want to be named, "but [that] would be detrimental to the whole deal. VMware is the crown jewel for Dell. Michael Dell told me directly that he has big plans for VMware in the new Dell portfolio."

"The die has been cast," the analyst told CRN, and more likely than not, the acquisition will be completed on Dell's timeline, which calls for a closing sometime between May and October.

Calling the last three months "a roller coaster ride for EMC," Zacks Research said in a report Monday that the Dell deal "is likely to be a positive for EMC and will give it a new lease on life."

For the moment, however, the Hopkinton, Mass.-based data storage giant faces "intense competition in storage, cloud computing and big data," Zacks said, as well as a sluggish market for IT spending and increased pricing pressure.

EMC has responded to those challenges, and sought to regain investor confidence, by maintaining a majority stake in its Virtustream cloud services unit rather than making it a 50-50 partnership with VMware, and with an aggressive $850 million-a-year cost-cutting program that includes an unspecified number of layoffs expected to be largely complete by the end of the first quarter.

EMC's third quarter revenues came in at about $6.1 billion, a year-over-year increase of 0.8 percent. Product sales decreased 3.8 percent year over year and services increased 6.7 percent year over year.

The quarter's bright spots were VMware, which saw 10.3 percent year-over-year revenue growth, to $1.7 billion, and the Pivotal software business, which saw revenue jump 15.5 percent year over year, to $67 million.