EMC Sees Fat 1Q Sales, Earnings Gains

Revenue for the quarter was $2.2 billion, up 20 percent year over year, and earnings jumped 93 percent to $270 million, or 11 cents per share, EMC reported. It was the 10th straight quarter that EMC met or exceeded its targets, said Bill Teuber, executive vice president and CFO of the Hopkinton, Mass.-based vendor.

The quarter also represented the first time that EMC reported its services revenue in software-related and non-software-related categories and its software revenue in three categories.

Hardware sales in the quarter hit $1 billion, accounting for 46 percent of overall revenue. Software sales rose 26 percent year over year to $832 million, accounting for 37 percent of total revenue. Services revenue also increased 26 percent, to $375 million, or 17 percent of total sales.

On the hardware side, the only negative for EMC was a 3 percent dip in Symmetrix revenue, to $652 million, thanks to a one-time deal in Asia last year that made a year-over-year comparison difficult, Teuber said. But on the Clariion side, revenue rose 47 percent to $419 million, with balanced growth between direct and channel sales, he said. The company's port count for its Connectrix connectivity products climbed 30 percent from last year, and sales of its Celerra NAS line grew 40 percent.

Total platform-related software sales were up 21 percent to $385 million, including software licensing revenue of $284 million, up 13 percent, and maintenance revenue of $100 million, up 50 percent, Teuber said.

In the EMC Software Group (ESG), license revenue for multiplatform management applications and software from SMARTs, which EMC acquired this quarter, rose 21 percent year over year to $147 million. ESG also saw backup and archive software revenue--including its legacy software and software from its Legato and Dantz acquisitions--climb 36 percent to $52 million, Teuber said. Content-management software sales, which includes revenue from Documentum and Legato's ApplicationXtender, increased 23 percent to $49 million.

Total ESG revenue came in at $401 million, up 24 percent. That included $248 million in license revenue, $125 million for maintenance and $28 million for consulting. VMware sales doubled since last year, reaching $80 million, Teuber said.

EMC's North America sales were $1.3 billion, or 23 percent of overall sales, according to Teuber. Clariion sales were a key driver in North America, he added.

Overall, EMC's relationship with Dell continues to be strong, with the Round Rock, Texas-based computer giant accounting for just more than one-third of EMC's unit sales and nearly one-third of its revenue, Teuber said.

For the second quarter, Teuber said he expects revenue of $2.33 billion to $2.36 billion, a gain of 18 percent to 19 percent year over year, and earnings of around 12 cents per share.

For all of fiscal 2005, EMC expects the entire market to grow 7 percent or 8 percent, meaning that the company should be able to double the growth of the whole market, Teuber said. He also expects gross margins of almost 53 percent and full-year earnings per share of 50 cents to 51 cents.

EMC President and CEO Joe Tucci said the company, like the rest of the industry, saw a slow February, but activity rebounded in the last three weeks of the quarter, especially in the United States. "I truly believe there's ample demand for EMC to achieve our goals in the second quarter," he said.

EMC is on track to continue its hardware business growth despite competition from the likes of IBM and Hitachi, according to Tucci. "We now have the major new products [from the other vendors] in-house, and we can tell you EMC outperforms them all," he said. IBM, in particular, is confusing customers with its recent deal with Network Appliance, giving it a mix of overlapping products, he noted.

The shortage of Fibre Channel drives that affected EMC in the first quarter also has been relaxed, Tucci added. "It's still tight but getting better," he said.

In addition, EMC is on track to announce its Symmetrix 7 offering before or during August, Tucci said, adding that the current DMX products are still selling well. "Customers know [the Symmetrix 7] is coming," he said. "But we don't see it significantly slowing down [DMX] orders."