EMC Dismisses Concerns, Keeps Focus On Future, Disruptive Technologies

EMC on Wednesday reported strong quarterly growth for its third fiscal quarter, but the news was overshadowed by questions about EMC's decision to make its VCE joint venture with Cisco a part of the EMC Information Infrastructure business and by questions about future plans.

EMC's major product lines did well, but the results were tempered by an expected slowdown in high-end storage as the company's new high-end VMAX3 line of storage arrays is still in the ramp-up phase.

EMC reported revenue for its third fiscal quarter 2014, ended Sept. 30, of $6 billion, up about 9 percent from the year-ago period. This included information infrastructure revenue of $4.5 billion, up 6 percent; Pivotal revenue of $600 million, up 24 percent; and its share of VMware revenue of $1.1 billion, up 17 percent.

[Related: VCE As Part Of EMC II To Be More Agile, Keep Cisco At Core: Execs]

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North America revenue grew 8 percent over last year to reach $3.3 billion, said David Goulden, president of EMC Information Infrastructure.

EMC also reported GAAP income of $587 million, or 28 cents per share, up 4 percent over last year. Non-GAAP income was $903 million, or 44 cents per share, up 10 percent compared to last year.

Within the core information infrastructure business, unified and backup and recovery storage revenue rose 6 percent over last year to $1.6 billion, emerging storage rose 47 percent to $600 million, professional services and other storage revenue rose 4 percent to $1 billion, and RSA security revenue rose 4 percent to $300 million, Goulden reported.

Within that emerging storage business, EMC's XtremIO all-flash storage array revenue passed the $500 million mark during the quarter, he said.

The only part of the business that was off was high-end storage, which saw revenue fall 7 percent to $1 billion. However, Goulden said, that revenue will pick up going forward as the new VMAX3 ramps up production.

EMC Chairman and CEO Joe Tucci called the third quarter an outstanding one for EMC.

"I believe when you compare our results with those of large-cap enterprise peers, our growth rate will stand out," Tucci said during the company's earnings call with analysts. "Why? Because our strategy, our product offerings, our portfolio of services and solutions, coupled with crisp execution, sets us apart in the minds of our customers."

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Tucci said EMC is gaining traction in the kind of technologies that are currently disrupting the IT market, including VMware's Nicira NSX software-defined networking; VMware AirWatch mobile device management and security; new Pivotal cloud and data fabrics; ScaleIO, ViPR and EMC Elastic Cloud Storage (ECS) software-defined storage; high-performance XtremIO flash storage; the newly-acquired DSSD for high-performance rack-scale flash storage; and VCE.

"To demonstrate the potential and progress of these great investments, in 2014 we expect combined revenue from NSX, AirWatch, Pivotal, XtremIO, ViPR and ScaleIO to be approximately $1 billion and growing extremely rapidly," he said. "Additionally, ECS is just beginning, and DSSD is still in development."

Tucci also said it is important for EMC to bring in VCE as part of EMC.

"We believe this move will provide VCE with the agility required to continue to lead the competitive converged infrastructure segment as well as expand the solutions it can offer customers," he said.

Tucci said EMC investments in these technologies, of about $6 billion, had a negative high-teen cents-per-share impact on 2014 earnings.

"We are making these investments because of our conviction that they will pay off handsomely for our shareholders in the years ahead," he said.

Tucci also addressed concerns among investors and speculation by the press that EMC might be making a big financial move such as a merger or acquisition to address slow growth.

"Through all this coverage, we continue to focus on our mission at hand," he said. "I assure you we have great assets and a great market position, and our board and management are focused on enhancing shareholder value."

Tucci declined to comment on the recent speculation and rumors about the company's potential strategic plans during the earnings call.

However, he did say that EMC has a strong business, and is at or near the top of its peers born in the client-server era in terms of performance.

"So it's baffling to me. ... I know we have great assets," he said.

Tucci also answered an analyst's question about his retirement plans, which have been put off a couple times until early 2015, by saying he has been talking to EMC's board of directors.

"I told the board, if you have someone you want to bring in early, that's fine with me," he said. "If you want me to stay a little longer, that's fine. If you want me to stay on in some chairman role, that's fine with me."