DataCore

EMC: Fiscal 4Q11 Financial Results

Total revenues above $20 billion in 2011; unstoppable ≠1 of WW storage industry

This is a Press Release edited by StorageNewsletter.com on 2012.01.25
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 (in US$ millions) 4Q10 4Q11 FY10   FY11
 Revenues 4,889 5,574 17,015  20,008
 Growth   14%   18%
 Net income (loss) 629 832 1,990  2,461

EMC Corporation reported record financial results for the fiscal fourth-quarter and full-year 2011 ended December 31, 2011.

For the fourth quarter, the company achieved all-time record quarterly consolidated revenue, net income and EPS on a GAAP and non-GAAP basis and all-time record operating cash flow and free cash flow. Full-year 2011 results were highlighted by all-time record consolidated revenue, net income, EPS, operating cash flow and free cash flow that each exceeded prior company outlook. The results were also highlighted by all-time record quarterly and full-year gross margins on a GAAP and non-GAAP basis.

Fourth-quarter consolidated revenue was $5.6 billion, an increase of 14% compared with the year-ago quarter. Fourth-quarter GAAP net income attributable to EMC increased 32% year over year to $832.0 million. Fourth-quarter GAAP earnings per weighted average diluted share increased 31% year over year to $0.38. Non-GAAP net income attributable to EMC for the fourth quarter was $1.07 billion, an increase of 16% compared with the year-ago quarter. Fourth-quarter non-GAAP earnings per weighted average diluted share were $0.49, an increase of 17% year over year.

For the full-year 2011, consolidated revenue was $20.0 billion, an increase of 18% year over year; GAAP net income attributable to EMC increased 30% year over year to $2.5 billion; and GAAP earnings per weighted average diluted share were $1.10, up 25% year over year. Non-GAAP net income attributable to EMC for 2011 was $3.4 billion, an increase of 24% year over year, and non-GAAP earnings per weighted average diluted share were $1.51, an increase of 20% year over year.

During the fourth quarter, EMC generated operating cash flow and free cash flow of $2.2 billion and $1.9 billion, increases of 44% and 55% year over year, respectively. For 2011, EMC generated operating cash flow of $5.7 billion and free cash flow of $4.4 billion, increases of 25% and 29% year over year, respectively. For the quarter and full-year, EMC expanded GAAP and non-GAAP gross margin and operating margin percentages on a year-over-year basis. The company ended the year with $10.8 billion in cash and investments.

Joe Tucci, EMC Chairman and CEO, said: "EMC had a strong and record-breaking 2011. There's no doubt that cloud computing is completely transforming the IT industry and that Big Data promises to have a similarly profound effect on transforming the way we work and live. Our customers and partners have these transformations in their sights and are embracing EMC's vision, strategy and best-of-breed portfolio to capitalize on them and realize the full potential of their information assets."

David Goulden, EMC Executive VP and CFO, said: "In 2011 we once again executed our triple play - simultaneously taking market share, reinvesting for growth and delivering improved earnings. With this momentum, we entered 2012 exceptionally well positioned to maintain our operational excellence, execute our growth strategy, and continue delivering our triple play results. We expect to grow over two times faster than our estimate of IT spending growth to achieve 2012 consolidated revenue of $22 billion, GAAP EPS of $1.24 and non-GAAP EPS of $1.70."

Fourth-Quarter and Full-Year 2011 Highlights
For the fourth quarter, EMC's Information Storage business increased revenue 12% year over year. Within this, high-end Symmetrix storage product portfolio revenue increased 11% compared with the year-ago quarter and mid-tier storage products revenue grew 24% year over year. Fourth-quarter revenue from VMware increased 27% year over year and revenue from EMC's RSA Information Security business grew 16% year over year.

Fourth-quarter highlights also included strong revenue growth for both the VNX unified storage family, which was selected by nearly 2,000 new customers in the quarter, and the company's Backup Recovery Systems (BRS) portfolio. Within the BRS portfolio, the combined annualized revenue run rate for Data Domain and Avamar in the quarter exceeded $2 billion.

Additionally, revenue from EMC's Isilon portfolio once again more than doubled year over year.

During the quarter, EMC continued to experience strong customer demand for its consulting and professional services to help build out their cloud architectures, and for EMC Greenplum solutions to leverage their Big Data assets.

Finally, VCE, the Virtual Computing Environment Company formed by Cisco and EMC with investments from VMware and Intel, continued to close in on the company's billion-dollar annualized revenue run-rate target as customer adoption of Vblock Converged Infrastructure Platforms increased significantly on a year-over-year basis.

EMC's consolidated fourth-quarter revenue from the United States reached an all-time record of $3.0 billion, an increase of 16% year over year, representing 54% of consolidated fourth-quarter revenue.

Revenue from EMC's business operations outside of the United States reached an all-time record $2.6 billion, an increase of 12% year over year, representing 46% of consolidated fourth-quarter revenue. Within this, revenue increased 6%, 26% and 26% year over year, respectively, in EMC's Europe, Middle East and Africa; Asia Pacific and Japan; and Latin America regions.

Throughout 2011, EMC strengthened its technology and services expertise in cloud computing and Big Data, advanced its competitive lead, and gained market share. Numerous strategic initiatives contributed to these achievements, including sustained investment in research and development, totaling 11% of annual consolidated 2011 revenue.

The introduction of new products such as the VNX unified storage and Symmetrix VMAX families and products from EMC's Isilon, Data Domain and Avamar portfolios contributed to market share gains and the expansion of the company's addressable market in 2011.

Additionally, EMC strengthened alignment with strategic partners as demonstrated by the strong momentum of VCE and expanded relationships with technology, solutions and service providers around the world. In 2011, more than 1,700 partners began selling EMC products for the first time, significantly expanding the company's partner ecosystem.

Business Outlook

  • Consolidated revenues are expected to be $22.0 billion for 2012.
  • Consolidated GAAP operating income is expected to be 17% of revenues for 2012 and consolidated non-GAAP operating income is expected to be 24% of revenues for 2012. Excluded from consolidated non-GAAP operating income are stock-based compensation expense, intangible asset amortization, restructuring and acquisition-related charges and the amortization of VMware's software capitalization from prior periods, which account for 4%, 1.5%, less than 1% and less than 0.5% of revenues, respectively.
  • Total consolidated GAAP non-operating expense, which includes investment income, interest expense and other income and expense, is expected to be $245 million in 2012 and total consolidated non-GAAP non-operating expense is expected to be $240 million in 2012. Excluded from non-GAAP non-operating expense is stock-based compensation expense of $5 million.
  • Consolidated GAAP net income attributable to EMC is expected to be $2.7 billion in 2012 and consolidated non-GAAP net income attributable to EMC is expected to be $3.7 billion in 2012. Excluded from consolidated non-GAAP net income attributable to EMC are stock-based compensation expense, intangible asset amortization, restructuring and acquisition-related charges and the amortization of VMware's software capitalization from prior periods, which account for $650 million, $225 million, $90 million and $30 million, respectively.
  • Consolidated GAAP earnings per weighted average diluted share are expected to be $1.24 for 2012 and consolidated non-GAAP earnings per weighted average diluted share are expected to be $1.70 for 2012. Excluded from consolidated non-GAAP earnings per weighted average diluted share are stock-based compensation expense, intangible asset amortization, restructuring and acquisition-related charges and the amortization of VMware's software capitalization from prior periods, which account for $0.30, $0.11, $0.04 and $0.01 per weighted average diluted share, respectively.
  • The consolidated GAAP income tax rate is expected to be 19% for 2012. Excluding the impact of stock-based compensation expense, intangible asset amortization, restructuring and acquisition-related charges and the amortization of VMware's software capitalization from prior periods, which collectively impact the tax rate by 2%, the consolidated non-GAAP income tax rate is expected to be 21% for 2012. This assumes that the U.S. research and development tax credit for 2012 is extended in the fourth quarter of 2012.
  • GAAP net income attributable to the non-controlling interest in VMware is expected to be $153 million and non-GAAP net income attributable to the non-controlling interest in VMware is expected to be $240 million for 2012. Excluded from non-GAAP net income attributable to the non-controlling interest in VMware are stock-based compensation expense, intangible asset amortization and the amortization of VMware's software capitalization from prior periods, which account for $68 million, $11 million and $8 million, respectively. The incremental dilution attributable to the shares of VMware held by EMC is expected to be $15 million for 2012.
  • The weighted-average outstanding diluted shares are expected to be 2.175 billion for 2012.
  • EMC expects to repurchase $700 million of the company's common stock in 2012.

Our Comments

                   Storage Revenues Only
                         
(In US$ million)

Revenues 4Q10 4Q10/4Q11
  
Growth
3Q11  4Q11 3Q11/4Q11
  
Growth
Products 2,557      10% 2,463 2,815      14%
Services 1,085      16% 1,190 1,257       6%
TOTAL 3,642     12%
3,653 4,072     11%

Revenues   FY10   FY11  Growth
Products  8,824 10,090    14%
Services  3,875   4,624    19%
TOTAL 12,699 14,715   16%

Abstracts of the earnings call transcript:

Dave Goulden, CFO:
"As expected, we have adequate hard disk drive supply for the period, although there were some challenges relative to the availability of certain drive types. Product revenue was up 11% and 24% in the high-end and mid-tier, respectively.
"The vast majority of these systems
[FAST VP to VMAX] are leveraging both flash and SATA drives and, in fact, flash capacity sold on VMAX more than doubled year-on-year in Q4.
"The order rate for Vblocks in Q4 exceeded $800 million on an annualized basis as we rapidly close in on the $1 billion run rate goal we highlighted last year. (...) The appeal of Vblocks is global, as wins in the quarter include the Spanish National Statistics Institute, a Swiss pharmaceutical company, a Mexican IT service provider, a Russian energy company, an Australian bank, and a large equipment distributor in the U.S."

Jo Tucci, chairman, president and CEO:
"We expect IT spending in Asia and on Japan, Latin America, Middle East and Africa, to be up 6% to 8% year-over-year. We expect IT spending in the U.K. and the Eurozone to be roughly flat. And we expect North American, Eastern European and Japanese markets to grow IT spending at 3% to 4%.
"We plan to launch a refresh of VNXe and increase software capabilities and performance enhancements across the VNX product line. We plan to introduce a new VMAX with even more software functionality, scale, capacity and performance. We plan to announce the general availability of Project Lightning, our service side flash product that is fully integrated with our fully automated storage tiering technology commonly called FAST. Please join us in 2 weeks for this exciting launch.
"We plan to refresh our Data Domain and Avamar product lines, featuring increased performance and scale, with enhanced offer of functionality. We will also have even tighter integration between these two products. We also have planned product refreshes of Isilon this year, featuring increased performance, scale and virtualization support and functionality enhancements for enterprise use cases.
"(...) we expect there to be drive availability constraints throughout 2012, and we expect these constraints to apply more to near-line drives than mission-critical drives. There is potential for availability constraints to improve in the second half of 2012, and given our strong relationship with our major driver vendors, we at EMC expect to be relatively better positioned.
"Based upon our business performance and sound prospects for continued success, EMC's Board of Directors has requested that I remain Chairman and CEO into 2013.
"After much soul-searching, I have agreed to extend my role as Chairman and CEO into 2013. (...) the board and I fully expect that my successor will come from within the existing, talented and experienced ranks of the EMC management team."

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