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EMC: Fiscal 3Q15 Financial Results

Storage flat thanks to emerging business

(in $ million) 3Q14 3Q15 9 mo. 14 9 mo. 15
Revenues 6,032 6,079 17,391 17,689
Growth   1%   2%
Net income (loss) 587 480 1,568 1,219

3Q15 Summary:

  • Revenue up 1% year over year and up 5% year over year on a constant currency basis
  • GAAP and non-GAAP EPS of $0.25 and $0.43, respectively
  • EMC Emerging Storage, Pivotal and VMware revenues up 27%, 16% and 10% year over year, respectively; up 32%, 18% and 14% year over year on a constant currency basis, respectively

EMC Corporationww.emc.com reported third-quarter 2015 financial results.

Consolidated third-quarter revenue was $6.08 billion, up 1% year over year and up 5% year over year on a constant currency basis1. GAAP and non-GAAP earnings per weighted average diluted share were $0.25 and $0.43, respectively.

EMC generated $1.4 billion in operating cash flow and $1.03 billion in free cash flow in the third quarter, and ended the quarter with $14.3 billion in cash and investments. EMC returned $229 million to shareholders in the third quarter via a quarterly dividend.

Joe Tucci, chairman and CEO, said: “This is an historic time for EMC and the entire IT industry. EMC combining with Dell, two highly complementary companies, will create a tech industry powerhouse – a new company with more than $80 billion in revenue that is extremely well positioned for a new era. We firmly believe that this compelling combination is the best strategic option for all our stakeholders. Our customers are sharing overwhelmingly positive feedback about the potential of having a strategic partner with more heft and relevance to drive their digital transformations.”

Zane Rowe, CFO, said: “EMC Emerging Storage, Pivotal and VMware generated positive momentum in the third quarter, thanks to the hard work of the entire EMC team. We continue to be relentlessly focused on building upon the strength of our portfolio and being more efficient. More specifically, the $850 million cost reduction and business transformation plans are on track, and the team is working on many initiatives in areas such as SKU simplification, facilities and manufacturing optimization, and direct material procurement that span EMC’s global operations.”

David Goulden, CEO of information infrastructure, said: “As the broader market shifts toward cloud, mobile, social and big data, we continue to expect newer storage technologies revenue to grow at high teens while traditional stand-alone storage systems revenue to decline at low teens. We anticipated this trend ahead of the broader market and evolved to a wider and deeper portfolio that has reached an interesting inflection point. For the first time in Q3, our newer storage products now make up more than half of our strategic storage business. This is a good indicator of the progress we’ve made in transitioning the portfolio, setting EMC up nicely for the future.”

Business highlights

  • EMC Information Infrastructure: Third-quarter revenue was down 3% year over year and up 2% year over year on a constant currency basis1. Information Storage revenue was down 2% year over year and up 3% on a constant currency basis, a result of a higher than expected number of units hipped orders of approximately $100 million. Emerging Storage revenue was up 27% year over year and up 32% on a constant currency basis. Within Emerging Storage in the quarter, XtremIO had another quarter of strong triple-digit revenue growth and is on track for more than $1 billion in bookings in 2015.
  • Pivotal: Third-quarter revenue was up 16% year over year and up 18% on a constant currency basis. Pivotal continues its transition to a subscription business model, with annual recurring revenue at the end of the third quarter of $75 million, up 26% quarter over quarter.
  • VMware: Third-quarter revenue was up 10% year over year and up 14% on a constant currency basis1. VMware continues to be a central player in the transformation of IT and its influence continues to grow with key technologies in the software-defined datacenter, end-user computing and hybrid cloud. VMware continues to be integral to EMC’s success as demonstrated by the companies’ aligned strategies, technology integration and financial results, with VMware representing 27% of EMC consolidated third-quarter revenue and 44% of EMC consolidated third-quarter non-GAAP operating income.

Global highlights
Consolidated third-quarter revenue from North America and Latin America was up 4% and 1% year over year, respectively, and up 4% and 14% on constant currency basis1, respectively. EMEA and AsiaPac and Japan revenue in the third quarter was down 3% and 4% year over year, respectively, and up 7% and 3% on a constant currency basis1, respectively.

Given the announcement made on October 12, 2015 regarding EMC’s entry into a definitive merger agreement, the company will no longer be providing outlook for its 2015 financial results.

Comments

Information storage revenue was down 2% year over year and up 3% on a constant currency basis, the third quarter of the year being traditionally a flat period.

Revenue of EMC Storage

  Products Services Total Q/Q growth
1Q13 2,472 1,326 3,798 -11%
2Q13 2,577 1,377 3,954 4%
3Q13 2,430 1,376 3,806 -4%
4Q13 3,260 1,445 4,705 24%
1Q14 2,302 1,378 3,680 -22%
2Q14 2,551 1,425 3,976 8%
3Q14 2,595 1,456 4,051 2%
4Q14 3,338 1,497 4,835 19%
1Q15 2,179 1,484 3,663 -24%
2Q15 2,509 1,519 4,028 10%
3Q15 2,424 1,537 3,961 -2%

All the storage activities are diminishing but 'emerging business' (Isilon, Atmos, VPLEX, ViPR, ScaleIO, Elastic cloud Storage Appliance, RecoverPoint, Data Computing Appliance, ASD Suites and vFlash and XtremIO).

EMC Information Infrastruture f2

 

 

 

 

 

 

 

 

 

This time, EMC didn't reveal outlook for the next quarter and the year. Three month ago the company was expected global GAAP revenue of $25.2 billion for 2015 but this figure will be not be reached as it will require $7.5 billion sales in next quarter.

EMC will also lose its top ranking in the worldwide storage industry, a position the company had since 2004, even with the addition of Dell. The combination of the storage business of both firms will be around $17 billion to $18 billion. Together WD and SanDisk is approximately $19.7 billion.  
 
Abstracts of the earnings call transcript:

Jo Tucci, chairman, president and CEO:
"The majority of the integration work [with Dell] takes place in EMC II, where we will combine Dell's server and storage business with our storage and converged infrastructure business."

Zane Rowe, CFO:
"In addition to the FX impact, storage revenue growth in the quarter was negatively impacted by a higher than expected build in unshipped orders of approximately $100 million. These orders came in too late in the quarter to ship and therefore added to the backlog at the end of the quarter.
"We were once again pleased with the emerging storage revenue, which grew 27% year over year or 32% when normalizing for FX."

Dave Goulden, CEO, information infrastructure:
"XtremIO had another strong triple-digit growth quarter and is on track for more than $1 billion in annual bookings this year.
"And we continue to expect standalone traditional storage systems, which in 2015 were a little over half of the external storage market, to decline at a low teens CAGR from 2014 to 2018, while newer storage technologies like all-flash, scale-out file and objects, converged infrastructure, purpose-built backup appliances, and software-defined storage are expected to grow at high teens CAGR collectively.
"If we look back to Q1 of 2013, our traditional standalone VMAX and VNX made up roughly 70% of this aggregate strategic storage business. Looking a bit deeper into the mix of these revenues today, we've reached an interesting inflection point this quarter. Q3 was the first time that the mature standalone VMAX and VNX businesses made up less than half of the aggregate strategic storage business. In other words, the products with the higher growth profile, including all-flash arrays, scale-out file, software-defined storage, converged infrastructure, and next-gen backup are now the bigger proportion of our strategic storage business. "

To read the earnings call transcript

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