It might have been a bit of a smokescreen Oct. 22 when EMC chose to reveal that it had acquired most of Cisco Systems’ 35 percent stake in the VCE venture at the same time it announced its fiscal third-quarter earnings report.
Off the top, news of acquiring additional ownership of a hot company will sit better with investors than the data storage giant’s earnings numbers, which failed to beat Wall Street projections and showed that the core business remains virtually flat, as it has for the last few financial periods.
EMC’s stock price at midday Oct. 22 was $27.60, up about 40 cents (1.5 percent) over the previous day’s close, so the strategy worked.
Hopkinton, Mass.-based EMC said that it will take over its joint venture on data center technology with Cisco, VCE, which is currently seeing a $2 billion annual run rate for revenue. Cisco spent $716 million in 2009 in its investment.
“We think this will be a major growth driver for EMC,” CEO, President and Chairman Joe Tucci said during the company’s earnings call to analysts and journalists.
In EMC’s third quarter, the company earned 44 cents per stock share, compared with 40 cents during the same period a year earlier. Analysts had forecast 46 cents per share.
Consolidated revenue—thanks mostly to its ownership in VMware, RSA Security and other non-storage properties—was up 9 percent to $6.03 billion from $5.54 billion a year ago. That figure does top the $6 billion analysts had expected.
EMC’s Information Infrastructure revenue was up 6 percent year over year. Information Storage revenue, which had posted double-digit growth for more than 20 quarters until recently, also reported a 6 percent increase year over year.
EMC generated $1.7 billion in operating cash flow and $1.3 billion in free cash flow in the third quarter. EMC ended the quarter with $15.4 billion in cash and investments. The company repurchased approximately $375 million worth of its common stock in the third quarter and returned approximately $240 million to shareholders via a quarterly dividend.
“These results are evidence that our strategy and execution are working,” Tucci said. “Our strategically aligned businesses—EMC Information Infrastructure, VMware, Pivotal and RSA—are well positioned to capitalize on the massive IT market opportunity in front of us.”
EMC will own about 90 percent of VCE (Cisco will retain 10 percent) by the end of Q4, when the deal is expected to close. A price was not disclosed. However, the Wall Street Journal reported that EMC will be paying a trivial amount for VCE, and EMC said the deal will have no material impact on its earnings this year.
The two companies and VMware—of which EMC owns about 80 percent—launched VCE in 2009, which makes an integrated data center solution called Vblocks that included servers and networking capabilities from Cisco, storage from EMC and virtualization technology from VMware.