EMC Misses Wall Street Estimates for Q3 2013

By Pedro Hernandez

EMC today reported third quarter revenues of $5.5 billion and earnings of $0.40 on $860 million in profits (non-GAAP), falling short of Wall Street estimates.

Analysts were expecting the IT and data storage giant to rake in $5.8 billion in sales and post earnings of $0.45 per share. As of this writing, shares in EMC have dropped over 4 percent to $24.20.

Compared to the same year-ago period, the company noted that revenues climbed 5 percent. Fueling that growth are VMware, EMC Information Infrastructure and Pivotal, a cloud computing and Big Data specialist that the company acquired in March 2012. EMC credits its Emerging Storage product lines -- consisting of Isilon, Atmos, VPLEX, RecoverPoint, ASD Suites and Xtrem -- for a 66 percent year over year bump in revenues for the business unit.

Despite these gains, overall the company failed to meet the financial industry's expectations. A major culprit: the U.S. government.

In company remarks, EMC COO David Goulden acknowledged that tighter federal purse strings had an effect on EMC's bottom line. "While our financial results for the third quarter were impacted by a decline in US federal spending and a backend-loaded quarter, we achieved almost all of our strategic and operational goals."

During an Oct. 22 conference call to discuss the company's third quarter financials, Goulden detailed how reduced federal IT spending impacted EMC. "Many storage product orders from the U.S. federal government that were expected to close in the last weeks of the quarter did not, due to less than expected year-end budget money and unexpected re-prioritization of these year-end budgets ahead of the federal government shutdown."

"This accounted for approximately $120 million of revenue shortfall against our expectations," added Goulden.

EMC Chairman and CEO, Joe Tucci, admitted during the call to being let down. "To be clear, and for the record, I am disappointed that we missed our Q3 revenue and EPS expectations," he said.

Noting that his company continues to "grow faster than most of our larger IT peers," Tucci claimed that EMC's "newer, high-growth businesses did extremely well." He reported that Pivotal's "developer PaaS, Cloud Foundry, is attracting an impressive and growing community of partners." Additionally, "Pivotal's Big Data analytics solutions show strong momentum and growth," along with VMware and RSA security, he said.

Despite Tucci's upbeat take on the market going forward, analysts see a continuing threat from the cloud.

In a research note, International Strategy & Investment Group (ISI) analysts Brian Marshall and Stephen Patel, posed the question, "Is the Cloud Actually Hannibal Lecter?"

Originally optimistic that the "EMC model could power through near-term macro challenges" and the cannibalistic effects of public clouds, flash storage and software-defined storage solutions, they are now singing a different tune. Marshall and Patel concluded it "was not the case with EMC delivering the biggest revenue miss in the company's history."

Nonetheless, EMC is tackling those challenges in "compelling ways." ISI reported positive early feedback on EMC's ViPR SDS (software-defined storage) platform and noted that the company is "increasingly enabling large enterprises to act as internal service provider with substantial cost savings for many application workloads." Further, ISI believes "XtremIO all-flash appliances combined with XtremSF PCIe server flash cards and XtremSW caching software will prove effective in fending off emerging flash upstarts."

Pedro Hernandez is a contributing editor at InfoStor. Follow him on Twitter @ecoINSITE.

This article was originally published on October 22, 2013