EMC's SMB Business, Channel Helps Drive Strong Q3

EMC on Monday said its business grew across all product lines and geographies, as well as through its indirect sales channels, leading to a solid third fiscal quarter and prospects for a strong finish to the year.

In addition to strong revenue and profit contributions from its VMware business, EMC also did extremely well with the SMB storage roll-out it started early this year, and saw its channel business grow in response to the SMB push.

EMC on Tuesday reported what it termed "consolidated revenue" of $5 billion for its third fiscal quarter, which ended September 30. By consolidated revenue, the company includes the $931 million in revenue contributed by VMware, a company in which EMC owns a majority stake. That represents an increase of 18 percent compared the third quarter of 2010.

Stripping out that VMware revenue, EMC's core revenue for the quarter was $4 billion, a 15-percent rise over the $3.5 billion it reported.

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EMC also reported third quarter income of $606 million, up 28 percent over the $473 million it reported last year. The company also reported earnings of 27 cents per share, up 23 percent from last year's 22 cents.

EMC did well across its entire business, including its channel, said David Goulden, EMC executive vice president and CFO.

EMC's mid-tier channel revenue through non-Dell channels rose 40 percent over last year, in large part thanks to the release early this year of its VNX and VNXe SMB storage products, Goulden said. The VNX and VNXe are sold primarily through indirect sales channels.

That release also led EMC to make a major push to recruit channel partners. EMC has doubled the number of its channel partners over the past year, and has recruited over 1,300 new channel partners to join EMC since the VNXe was released, Goulden said.

"Our efforts to expand and deepen our channel relationships are paying off, both for us and for our partners," he said.

The VNX family, which offers EMC similar margins to its older Clariion storage family, is also providing EMC and its partners new opportunities, Goulden said. These include higher software attach rates than in the past, as well as a 50-percent attach rate for Flash storage drives and EMC's FAST tiering software, he said.

EMC's channel growth combined with the unified NAS-SAN technology of its VNX storage array family has helped EMC grow its market share, Goulden said. "We're getting share from traditional SAN and NAS vendors alike," he said.

EMC's overall third quarter storage revenue hit $3.7 billion, up 16 percent compared to last year. The company's RSA security business also rose 16 percent to reach $215 million. However, its Information Intelligence Group revenue fell 3 percent to $171 million.

EMC's big data-related revenue, which includes products and services related to its Isilon scalable NAS, Atmos scalable SAN, and Greenplum data warehousing technologies, more than doubled over last year, Goulden said.

EMC's North America business grew about 16 percent over last year, and now accounts for about 56 percent of EMC's total revenue.

Joe Tucci, EMC chairman and CEO, said that customers in the third quarter were active, but were more careful in making purchases than in the fast, focusing on their return on investment. As a result, Tucci said, EMC's revenue was skewed towards the end of the quarter.

Next: No Impact From Thailand Floods Expected

Tucci said he also expects the same pattern in the fourth quarter, although he said the fourth quarter will come in a "tick" below what the company would have expected given historical trends. He said he expects the quarter will still have its traditional "budget flush," which happens when a company or government entity with left-over budget dollars spends them at the end of the year.

"The winners will be the IT vendors who can truly provide ROI (return on investment)," he said.

Tucci said he expects the overall IT market to grow in 2012 over 2011, although at a slower rate than this year.

Tucci said that EMC has yet to receive any fallout from the Thailand floods which have ravished that country's hard disk drive industry, and that based on where EMC's suppliers are based, he expects no major impact.

"We have been working very closely with our suppliers since the beginning ... Bear in mind, we tend to be our suppliers' biggest customer, and we get special pricing," he said.