EMC Loss Grows, Layoffs Announced

As expected, storage hardware leader EMC announced its first quarterly loss since 1989 this morning. Unexpectedly, the loss was twice as bad as most analysts predicted.

As expected, storage hardware leader EMC Corp. announced its first quarterly loss since 1989 this morning. Unexpectedly, the loss was twice as bad as most analysts predicted.

Citing overall market conditions, the terrorism events of Sept. 11, the pricing methods of its competition and EMCs overall execution, EMC reported a third-quarter loss of $270 million, or 12 cents a share. Most analysts had predicted a four or five cents a share loss.

Combining its $270 million pro forma loss with an $825 million restructuring charge, the Hopkinton, Mass., companys consolidated official loss was $945 million, or 43 cents per share, officials said in a press conference.

EMCs third-quarter revenue dropped to $1.21 billion from $2.3 billion in the same quarter a year ago.

"Q3 2001 results were obviously very disappointing," said EMC Chairman Mike Ruettgers.

Although much of the revenue has "just disappeared. ... You have to ask about the impact of competition," Ruettgers said, citing as EMCs main rivals IBM, of Armonk, N.Y., and Hitachi Ltd., of Tokyo. EMC reacted slower to market changes than was needed, and some customers may see IBMs or Hitachis products as being good enough to do the job at a lower cost, he admitted.

But, Ruettgers added, EMC will have "more new product announcements scheduled over the next 15 months than at any time in our history."

EMCs plan to fix things includes a 4,000-person layoff, bringing the overall headcount to 19,000, said Joe Tucci, EMCs president and CEO. The plan also entails more outsourcing, more use of sales channels (especially for low-end products) and the introduction of monthly sales quotas to reduce the companys reliance on the "hockey stick" trend of late-year sales.

By this time next year, these actions will save the company $800 million annually, officials said.

An example of the companys reformed direction, Tucci said, will be announced next Monday in New York City. At the press event, EMC will announce the first installation of its Automatic Information Storage, or AutoIS, initiative, which Chief Technology Officer Jim Rothnie first announced in August. As indicated in slides presented during this mornings earnings announcement, the Oct. 29 AutoIS news will be largely focused on software, but there will also be a major hardware component, sources told eWEEK.

Other actions taken by EMC, Tucci said, are to change the companys image of corporate arrogance – "We weeded them out," Tucci said – as well as new focuses on making software that works with non-EMC hardware, details of which will also emerge at next weeks event, he said.

An additional focus will be on what happens to storage hardware devices "when you network them and consolidate them." Tucci didnt use the word "virtualization," the buzzword for pooling storage hardware into a single unit, as that term implies hardware commoditization.

EMCs stock price has dropped about 80 percent during the past year and was trading at about $12 per share this morning.