EMC Posts Record Q4 and Financial Year

Data storage juggernaut EMC posted record revenue in its Q4 2008 earnings report Jan. 27, but a long financial hitting streak -- a source of pride for the company for more than five years -- has been broken.

The world's largest data storage infrastructure company reported record fourth-quarter revenue of $4.02 billion, an increase of 8 percent sequentially and 5 percent year over year.

Thus, EMC's streak of 21 consecutive quarters with double-digit revenue increases has ended, but that is a minor footnote in the bigger picture of the IT macroeconomy.

Another EMC streak stayed alive, however: It was the company's sixth consecutive year of double-digit annual revenue growth. In 2008, EMC posted a total consolidated revenue record of $14.88 billion, an increase of 12 percent year over year.

The Hopkinton, Mass.-based company did not provide guidance for Q1'09, unlike other hardware vendors, such as Seagate and IBM.

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"EMC has a firm grasp on what's required to thrive in tough times and emerge even stronger in the next growth cycle," President, CEO and Chairman Joe Tucci told analysts and journalists in his prepared remarks.

EMC generated Q4 operating cash flow of $1.1 billion and free cash flow of $775 million, each increasing 9 percent year over year. In 2008, EMC's operating cash flow was $3.6 billion, an increase of 14 percent compared with 2007, and free cash flow was $2.6 billion, an increase of 17 percent year over year.

'Tight Alignment with Customer Priorities'

Tucci said that EMC's ability to achieve record results despite the macroeconomy was driven by "tight alignment with key customer priorities; the strongest and most integrated product, services and partner portfolio in company history; and solid execution throughout the year."

EMC's bread-and-butter assets are its Clariion and Symmetrix enterprise storage array franchises, RSA security division and VMware virtualization division.

Despite the solid overall numbers, some analysts had their reservations about EMC as it looks ahead in 2009.

Avian Securities' Matt Bryson said that the performance of EMC’s security and content management groups were relatively disappointing when compared with historic results.

"All metrics appeared roughly in-line with expectations, with GMs improving modestly, deferred and A/R increasing in-line with sales, with perhaps the one pleasant unexpected result being EMC's draw down of inventories," Bryson said.

"In addition, it appears that a number of accounting changes and transition costs will largely offset the benefit of EMC’s reduction in force. While a meaningful portion of the additional expenses are non-cash, we believe the Street could be disappointed given the expectation that EMC would be able to protect earnings even in a difficult environment through expense reductions," Bryson said.

2000 Bubble Resonates in EMC's Memory

The giant storage company is wary about the global downturn, saying Jan. 7 that it will trim about 2,400 jobs -- or about 6 percent of its staff over the next 12 to 15 months -- in light of the recession.

"Even with record revenue, EMC recognized the writing on the wall -- growth rates continued trending downwards 4Q08, and there is no expectation of an economic recovery in 1H09," said Allan Krans, senior analyst at Technology Business Research.

"EMC was pummeled during the last economic slowdown, as its annual revenue fell from $8.9 billion in 2000 to $5.4 billion in 2002 and registered combined operating losses of $247 million during 2001 and 2002.

"TBR believes the memory of that last downturn still resonates quite clearly with current management, and drove the decision to reduce headcount by 2,400 even while revenue and profitability continued to trend upwards.

"With revenue growth expected to become slower in 1H09, TBR believes these proactive job reductions will help EMC in staying ahead of the economy, and aid in maintaining profitability as product mix shifts toward lower-margin hardware and services," Krans said.