By Lisa Beilfuss And Don Clark
EMC Corp. said first-quarter profits fell sharply and the
company cut its full-year outlook, largely because of geopolitical
factors and a continued drag from currency rates.
"We fell a bit short on first-quarter storage revenue due to
geopolitical factors in Russia and China and not executing as
crisply as we had expected in the first quarter," said Chief
Executive Joe Tucci.
The company said its revised outlook for the year reflects the
impact of foreign-currency exchange rates. EMC now expects to earn
currency-adjusted profit of $1.91 a share on $25.7 billion in
revenue.
In January, the company projected earnings of $1.98 a share and
revenue of $26.1 billion. Like many tech companies, the stronger
dollar relative to foreign currencies makes EMC's products more
expensive to some customers, particularly in Europe.
Sales in the data-storage giant's core information storage
business decreased 1%, as EMC struggles to spur growth in sales of
its high-end VMAX systems. That decline was offset by sales from
newer hardware EMC acquired by buying smaller companies, including
a line called XtremIO that stores data on flash-memory chips rather
than disk drives. Adjusted for currency effects, sales in the
segment rose 3%.
EMC also benefited from growth at two software companies it
controls, VMware Inc. and Pivotal Software Inc., key components of
what the company calls its federation strategy.
The Hopkinton, Mass., company has faced pressure to change the
strategy from investors that include Elliott Management Corp. The
activist investor purchased a large stake in EMC last year and has
urged the company to spin off its remaining stake in VMware or
pursue other strategic opportunities to help boost EMC's share
price.
That pressure eased somewhat in January, after Elliott agreed to
a standstill agreement until September and EMC appointed two new
directors that were approved by the investment firm. EMC management
last month held a meeting with investors at which it reaffirmed the
federation strategy, while disclosing measures to help the
operations work better together.
Another question lingering for the company is how long Joe Tucci
will remain chief executive. His employment contract expired
earlier this year, but Mr. Tucci has said EMC's board has asked him
to stay for an unspecified length of time. The company didn't
provide a management update in its release on Wednesday.
VMware reported Tuesday that first-quarter revenue rose 12%,
while net income declined 1%. Pivotal posted an 8% revenue increase
in the fourth quarter, EMC said Wednesday.
In all, EMC reported first-quarter net income of $252 million,
or 13 cents a share, down from a profit in the year-earlier period
of $728 million, or 19 cents a share. Revenue rose 2% to $5.6
billion.
On an adjusted basis that excludes stock-based compensation and
other items, EMC said it posted earnings of 31 cents a share, down
from 35 cents a year earlier. Currency-adjusted revenue rose
6%.
Analysts had expected earnings on that basis of 36 cents a share
on $5.74 billion in revenue, according to Thomson Reuters.
Shares in the company, down 11.5% this year through Tuesday's
close, fell 2.1% to $25.76 in premarket trading.
Write to Don Clark at don.clark@wsj.com
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