By Don Clark And Lisa Beilfuss
EMC Corp. reported a 32% drop in first-quarter profit, blaming
soft sales of data storage hardware on business conditions in two
countries and some problems of the company's own making.
The Hopkinton, Mass., company also lowered its financial
expectations for the year due to a continued drag from currency
rates, which can make products of U.S. companies more expensive in
some markets.
EMC Chief Executive Joe Tucci said sales of data-storage
equipment were hurt in China by increased scrutiny of U.S.
technology purchases among government and financial customers,
while sales in Russia were hurt by economic conditions and currency
impacts.
But Mr. Tucci said about two-thirds of a $75 million revenue
shortfall in EMC's storage business came from operating issues,
including recent head count reductions that affected sales efforts
and customer moves to delay orders as they waited for an expected
upgrade to a major product line.
"China and Russia aside, we understand what we need to do
better," Mr. Tucci said during a conference call Wednesday. "We
have taken corrective actions."
Despite the downbeat disclosures, EMC's shares were recently
trading nearly 3% higher on the news.
Daniel Ives, an analyst with FBR Capital Markets, said the
first-quarter results and revised guidance weren't as bad as some
investors feared. Despite the reaction, though, EMC remains under
pressure to do better this year, he added.
"Patience is wearing thin among investors," he said.
EMC, based in Hopkinton, Mass., is best known for large systems
that use disk drives to store corporate data. But it has branched
out into many other areas, largely through acquisitions.
The company benefited in the first quarter from growth at two
software companies it controls, VMware Inc. and Pivotal Software
Inc., key components of what the company calls its federation
strategy.
EMC has faced pressure to change its structure 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 roughly 80% stake in VMware 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 who were approved by the investment firm.
Another question looming over EMC is how long Mr. Tucci will
remain chief executive. His employment contract expired earlier
this year.
Mr. Tucci, as in the past, on Wednesday gave no specific
timetable for giving up the CEO job but said he would likely retain
his chairman role for some time after EMC's board names a
successor. "I am here, I am engaged, I am working hard," he
said.
EMC's problems include the fact that customers have slowed
purchases of its flagship VMAX systems. The company said sales of
high-end hardware declined 7% in the first quarter, while another
segment that includes products for helping customers back up and
recover data declined 11%.
Those declines were partly offset by newer products, including a
line called XtremIO that stores data on flash-memory chips rather
than disk drives. Revenue for that segment rose 14% in the first
quarter, and the company projected it could book $1 billion in
orders for the product this year. In all, revenue for EMC's
information infrastructure unit declined 1%.
VMware on Tuesday reported that first-quarter revenue rose 12%,
while Pivotal posted an 8% revenue increase, 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, and was up 6% when currency effects were adjusted.
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. Analysts had expected earnings on
that basis of 36 cents a share on $5.74 billion in revenue,
according to Thomson Reuters.
EMC said Wednesday it now expects to earn currency-adjusted
profits 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.
Write to Don Clark at don.clark@wsj.com
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