Delivery, Inventory Problems Besmirch Otherwise-Positive EMC Q2 Report - Page 2

So why is EMC beating itself up over what is ostensibly a stellar report card?

"Some Wall Streeters got nervous when EMC reported weaker expected demand for previous-generation DMX arrays in the second quarter (which they apparently expected to sell more of) versus stronger-than-expected demand for current-generation DMX late in the second quarter, which they couldnt deliver because they didnt have enough inventory," said John Webster, founder and senior analyst of Data Mobility Group in Nashua, N.H.

"Wall Street hates surprises of this kind and punish those who surprise them negatively."

EMCs results also had a knock-on effect for NetApp July 13, Webster said.

"NetApp stock got hammered when news of a minor accounting inquiry surfaced. Normally, this kind of news would not have resulted in the beating NetApp stock has taken recently. But with the nervousness generated by EMCs results, NetApp also gets hit. Call it collateral damage," Webster said.

EMC finally succumbed to a business model that has been an asset for so long: a direct sales force that waits until the end of the quarter to close business and long product refreshes, said Brian Babineau, a Palo Alto, Calif.-based analyst with Enterprise Strategy Group.

"Clearly, EMC could not continue to run its business this way because of increased competition and additional customer scrutiny in making purchasing decisions," Babineau told eWEEK.

"I think EMCs humbleness on its call actually proved that the company can execute with appropriate planning inclusive of setting appropriate expectations with Wall Street.

"Kudos for Tucci leading the call, disclosing purchase prices and revenue ramp of recent acquisitions, and falling on the sword for EMCs missteps that are a direct result of having backend-loaded quarters.

"We do not believe that there is a weakening of end-user demand for EMC products; EMC just needs to improve its product cycles to reduce sales cycles with the intent of capturing spend at the end of a quarter."

Its recent performance is a reminder that EMC is still highly dependent on its hardware business, said Allan Krans, analyst with Technology Business Research, in Hampton, N.H.

"Although most of the press and strategic discussions focus on software, EMCs hardware business is a key enabler of its software and services businesses. Put in simple terms: Without hardware, EMC would not be a strong player in the storage software market," Krans told eWEEK.

"Despite the disappointment in its hardware division, EMCs results this quarter did reflect positively on the companys overall strategy. At a time when analysts are widely questioning EMCs recent [June 29] purchase of RSA, software sales contributed strongly to EMCs overall revenue and profitability during the quarter," Krans said.

Wall Street refuses to see EMC as a diversified information management company, Webster said.

"It still focuses in on hardware sales. Im not sure what else Joe Tucci has to do to change that image. Someday, maybe theyll get it," Webster said.

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Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor of Features & Analysis at eWEEK, responsible in large part for the publication's coverage areas. In his 12 years and more than 3,900 stories at eWEEK, he...