EMC Gives Weak Outlook, Sees Slower Tech Spending

 
 
By Reuters -  |  Posted 2008-10-22 Email Print this article Print
 
 
 
 
 
 
 

Storage equipment maker EMC forecast earnings for the current quarter at the low end of Wall Street expectations, while shares rose 7 percent on relief that the news wasn't worse and also by stronger-than-expected quarterly results from unit VMware Inc.

BOSTON (Reuters) - EMC Corp. forecast earnings for the current quarter at the low end of Wall Street expectations as the world's top corporate storage equipment maker faced slower spending on information technology.

But shares rose 7 percent on relief that the news wasn't worse and also by stronger-than-expected quarterly results from unit VMware Inc. late on Tuesday. EMC owns 85 percent of VMware and said it had no plans to spin off more of its stake.

"I'm surprised they did not guide lower," said Kaushik Roy, an analyst with Pacific Growth Equities. "People were pricing in a doomsday scenario."

EMC expects fourth-quarter net income at 23 to 24 cents per share and revenue of $4 billion. Wall Street was looking for earnings of 24 cents per share on revenue of $4.1 billion.

EMC did not issue a forecast for 2009 and Roy thought company executives would be reluctant to do so during a conference call later on Wednesday.

"It all depends on the macro situation. Things are changing every week. If I were the CEO I wouldn't know how to come up with good guidance," Roy said.

EMC Chief Executive Joseph Tucci said he saw "a challenging economic environment ahead" and that he expected global information technology spending to grow between 1 percent and 3 percent next year. "Hopefully the markets we are in will have a little bit more lift than that," he said on a conference call.

Net income fell 17 percent to $411 million, or 20 cents per share, in the quarter ended Sept. 30, from $493 million, or 24 cents a share, a year earlier. The year-ago results included a gain of more than 5 cents on the sale of VMware shares.

EMC's adjusted third-quarter profit excluding items was 19 cents per share, as computed by Reuters Estimates, a penny above the Wall Street average forecast of 18 cents.

Revenue climbed 13 percent to $3.72 billion. Wall Street had forecast $3.73 billion.

The results come after rival International Business Machines Corp, which sells competing storage equipment and software, reported weaker-than-expected sales and stronger-than-expected profit earlier this month.

For Hopkinton, Massachusetts-based EMC, growth in the United States was the slowest, with revenue climbing 7 percent. Revenue rose 20 percent in Europe, the Middle East and Africa, gained 19 percent in Asia, and 27 percent in Latin America.

Sales at EMC's storage hardware business, its largest unit, rose 11 percent to $2.9 billion. Revenue at its fledgling security division rose 11 percent to $147 million.

Sales at its content management and archiving software unit, which competes with products from IBM, fell 1 percent to $188 million.

Revenue from its VMware infrastructure software division rose 33 percent to $472 million.

Shares of EMC were up 7 percent at $10.46 in pre-market trading, compared to their Tuesday close of $9.69 on the New York Stock Exchange. VMware shares were up 14.7 percent at $21.48, from their previous close of $18.73.

(Reporting by Jim Finkle; Editing by Derek Caney)

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