EMC Misses Street Expectations, Revenue Stream Slowing

For several years, EMC reported record revenue and profits quarter after quarter. However, things began to slow down in 2012.

Diversified IT products and services giant EMC reported quarterly financial results Oct. 22 that showed modest 5 percent year-over-year revenue growth, but the report also indicated that its revenue and profit streams are slowing down.

The storage, virtualization and cloud software and security conglomerate missed Wall Street analyst consensus forecast on both revenue and profit. Revenue totaled $5.54 billion for the third quarter of 2013, well under the $5.79 billion which had been projected by the company and analysts.

Net income was $860 million, and the company made 40 cents per stock share for its investors. Analysts had expected 45 cents.

The stock closed down 4.75 percent at $24.04 but rebounded a fraction in after-hours trading to $24.10.

For several years, EMC became accustomed to record revenue and profits quarter after quarter, racking up more than 20 consecutive reporting periods in double-digit revenue and profit margins. However, things began to slow down in 2012, and the trend appears to be continuing.

Executives at the Hopkinton, Mass.-based company expressed "disappointment" with the company's financials. They pointed to a slowdown in U.S. federal spending as a large part of the problem.

"While our financial results for the third quarter were impacted by a decline in U.S. federal spending and a backend-loaded quarter, we achieved almost all of our strategic and operational goals," EMC President and COO David Goulden said.

"We were pleased to see storage demand accelerate in the third quarter--excluding U.S. federal--and we think this is an encouraging sign for the storage market overall."

Two key EMC subsidiaries, VMware and Pivotal, did well, which contributed mightily to EMC's revenue total. VMware beat earnings estimates with 84 cents per share; Wall Street consensus had been for 82 cents.

VMware contributed $1.29 billion in revenue --up nearly 20 percent from 2012--and contributed net income of $363 million.

Pivotal, which makes cloud management tools and was acquired in March 2012, increased its revenue 14 percent from the previous quarter. In the second quarter of 2013, Pivotal had generated $70 million in revenue and increases its sales to $80 million in the third quarter.
EMC CEO Joe Tucci kept a stiff upper lip, saying in a statement: "Despite our disappointment with our quarterly results, our confidence in the success of our strategy over the long term has never been stronger."

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 13 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...