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EMC: Fiscal 4Q14 Financial Results

Continues to be leader of worldwide storage industry, since 2004

(in $ million) 4Q13 4Q14 FY13 FY14
Revenue 6,682 7,048 23,222 24,440
Growth   5%   5%
Net income (loss) 1,022 1,147 2,889 2,714

 EMC Corporation reported fourth-quarter and full-year 2014 financial results.

Record fourth-quarter consolidated revenue was $7 billion, up 5% year over year.

GAAP net income attributable to EMC was $1.15 billion, an increase of 12% compared with the year-ago quarter. GAAP earnings per weighted average diluted share was $0.56 in the fourth quarter, up 17% year over year. Non-GAAP net income attributable to EMC was $1.4 billion, an increase of 10% compared with the year-ago quarter. Non-GAAP earnings per weighted average diluted share was $0.69, up 15% compared with the year-ago quarter.

Full-year 2014 revenue was $24.4 billion, an increase of 5% year over year.

GAAP net income attributable to EMC for 2014 was $2.7 billion, down 6% year over year, and GAAP earnings per weighted average diluted share was $1.32, down 1% year over year. Non-GAAP2 net income attributable to EMC for 2014 was $3.9 billion, an increase of 1% year over year, and non-GAAP2 earnings per weighted average diluted share was $1.90, an increase of 6% year over year.

For 2014, the company generated $6.5 billion in operating cash flow and $5 billion in free cash flow. The company closed 2014 with $14.7 billion in cash and investments.

In the fourth quarter it repurchased approximately $1.6 billion worth of its common stock and returned approximately $240 million to shareholders via a quarterly dividend. Over the course of 2014 EMC returned $3.9 billion to shareholders through the repurchase of $3 billion worth of its common stock and approximately $900 million via quarterly dividends.

Joe Tucci, chairman and CEO, said: “EMC demonstrated solid performance in the fourth quarter and over the course of 2014. Our strategy is working well despite a challenging and rapidly changing IT environment. The company stands at the forefront of our industry with a leading portfolio of solutions and services to help customers optimize their existing infrastructures and build new ones that take advantage of opportunities created by cloud, mobile, social and big data. We enter 2015 financially strong and well positioned to continue capturing greater market share.”

Zane Rowe, EMC CFO, said: “EMC is establishing a solid foundation for the future, while also delivering near-term growth as we transform our business. Thanks to the unified team effort, in 2014 EMC grew revenue and EPS, gained share, increased our dividend and accelerated our buyback program – returning $3.9 billion to shareholders. Our strong operational results were impacted by currency fluctuations and EMC’s investments in high-growth businesses. While we expect these factors to continue to impact 2015 results, we remain focused on driving growth for shareholders and delivering best-in-class solutions for customers.”

David Goulden, CEO, EMC information infrastructure, said: “In 2014 EMC invested aggressively in key technology areas, innovated across all businesses, and continued to extend our lead in slower-growing but massive storage markets while making enormous strides in faster-growing areas like all-flash, where we are also the market segment leader. We delivered new and differentiated solutions, like the enterprise hybrid cloud solution to help customers bring cloud agility and flexibility to existing applications and a platform for rapid deployment of new applications – a key differentiator for EMC. We also continued our leadership in converged infrastructure, helping customers transform their IT infrastructure by reducing time to deploy and cost to manage new IT infrastructure. Collectively, this will serve us well in 2015 and ensure our continued lead in information infrastructure well into the future.”

4Q14 and FY14
EMC information infrastructure business fourth-quarter and full-year 2014 revenue were each up 2% year over year. Information storage revenue in the fourth quarter grew 3% year over year and 2% for the full year. Emerging storage revenue in the fourth quarter grew 40% year over year and 52% for the full-year 2014, achieving $2.3 billion in revenue over the course of 2014, with notably strong growth for EMC XtremIO, EMC ViPR, EMC Isilon and EMC ScaleIO. Within this, EMC XtremIO bookings more than doubled to nearly $300 million in the fourth quarter compared with the previous quarter, thereby securing a commanding lead over the all-flash array market segment. Unified and Backup and Recovery revenue grew in the fourth quarter and was up 4% for the full-year 2014. Within this, EMC VNX systems continue to do well, adding approximately 2,000 new customers in the fourth quarter, with the vast majority being new to EMC storage. RSA fourth-quarter revenue grew 4% year over year and grew 5% for 2014. Converged infrastructure offerings from VCE and VSPEX continued to drive revenue growth in the fourth quarter, with VCE adding a record number of new customers in the quarter.”

VMware continued its rapid growth trajectory with fourth-quarter and full-year 2014 revenue within EMC each up 16% year over year as customers continue investing in software-defined data center, hybrid cloud solutions and end-user computing.
Pivotal grew fourth-quarter revenue 18% and full-year 2014 revenue 27% year over year, and remains the fastest growing of EMC’s federated businesses, benefiting from customers leveraging the portfolio to build third platform applications that are transforming their business.

G lobal highlights
EMC’s consolidated fourth-quarter revenue from North America grew 6% year over year, and within this revenue from the United States was up 7% year over year. Revenue from EMC’s Europe, Middle East and Africa region grew 6% year over year, AsiaPac and Japan grew 2% year over year and Latin America grew 8% year over year. Revenue from the BRIC +13 markets grew 7% year over year in the fourth quarter.

Outlook
Business outlook reflects the negative impact of anticipated foreign currency fluctuations and the consolidation of VCE results. All dollar amounts and percentages set forth below should be considered to be approximations.

  • Consolidated revenues are expected to be $26.1 billion for 2015.
  • Consolidated GAAP operating income is expected to be 13.7% of revenues for 2015 and consolidated non-GAAP5 operating income is expected to be 21.4% of revenues for 2015.
  • Consolidated GAAP earnings per weighted average diluted share are expected to be $1.27 for 2015 and consolidated non-GAAP5 earnings per weighted average diluted share are expected to be $1.98 for 2015.
  • The consolidated GAAP income tax rate is expected to be 23.0% and the consolidated non-GAAP5 income tax rate is expected to be 23.6% for 2015. This assumes that the U.S. R&D tax credit is ex tended during 2015.
  • The weighted average outstanding diluted shares are expected to be 1.96 billion for 2015.
  • EMC expects to repurchase an aggregate of $3.0 billion of the comp any’s common stock in 2015.

Comments

Here our analysis totally concentrated on EMC storage business only.

The last three months of the year are generally the best quarter for the company and other vendors as end users need to spend what remains of their yearly budget before the following year.

For the December quarter last year, EMC storage revenue was up 24% Q/Q. This time it's 19% at $4,835 million, an historical record for the firm as well as in term of product and service sales.

But this storage revenue in the fourth quarter only grew 3% Y/Y and 2% for the full year.

All storage giants were obliged to diverse their portfolio, especially towards systems integrating flash, software-defined storage and cloud, what EMC calls Emerging Storage that includes Isilon, Atmos, VPLEX, ViPR, ScaleIO, Elastic cloud storage appliance, RecoverPoint, data computing appliance, ASD suites, and vFlash and XtremIO families.

Traditional high-end storage represented 45% of storage sales in 2001. Four year later it's 32%. On the other side, for emerging storage, the percentage increased from 1% to 18%, respectively.

EMC information infrastructure mix shift

emc 4Q14 f2

EMC expect this emerging products group to continue to grow at over 30% in 2015.

For the month recent three-month period the growth is 40% Q/Q, and 52% for the year at $2.3 billion, notably pushed by XtremIO, ViPR, Isilon and ScaleIO. Flash arrays XtremIO bookings more than doubled to around $300 million 4Q14 compared with 3Q14 with annual rate of $1 billion for the most recent quarter, the vendor saying that it's the "number one fastest-growing product in EMC history", claiming 35% share in all flash array market with 40% of Fortune 500 being customers.

The customer count for Hadoop on Isilon increased from more than 400 customers in 3Q14 over 600 in 4Q14.

Unified and back-up recovery business was up 4% for the year.

"VNX systems continue to do well, adding approximately 2,000 new customers in the fourth quarter, with the vast majority being new to EMC storage", commented the company. Its MCx architecture continues to drive flash adoption with flash capacity shipped on the VNX up almost 7% Y/Y in 4Q14.  

"We had strong momentum in 2014 for our converged infrastructure offerings, where we expect annual product demand grew over 40% for the year. In addition, VCE demand growth in Q4 exceeded 50% for the seventh quarter in a row," said chairman and CEO Joe Tucci.

Converged infrastructure offerings from VCE and VSPEX also are up in 4Q14, with VCE adding a record number of new customers in the period.

For David Goulden, CEO, information infrastructure, "Our high-end VMAX business was down 7% in 4Q14 and 30% for the full year. This decline reflects that marked slowdown in the high-end market in 2014 as new third platform workload such as Hadoop are often better suited for alternative architectures that we have in our arsenal (...) we expect that VMAX rate of decline to ease a little in 2015."

The firm is really efficient in its expectations. One year ago, global revenue was previewed to be $24.5 billion for 2014. The final result is  $24.4 billion. EMC expects $26.1 billion for 2015, a yearly growth of 7% counting on "global IT spending to accelerate a bit in constant currency terms perhaps to 3% growth overall and 3% in storage," according to Tucci

If you compare the storage revenue of all companies in the world for their fiscal year ending 2014, EMC will continue to be the number one, a position occupied each year since 2004, not far in front of Micron (in storage but with completely different activities and growing an impressive 80% Y/Y), WD, Seagate and NetApp.

EMC storage revenue for the quarter
(in $ million)

  4Q13 4Q14 Growth
product revenue 3,260 3,338 2%
service revenue 1,445 1,497 4%
total 4,705 4,835 3%
gross profit 2,680 (5.0%) 2,776 (57.4%) 4%

EMC storage revenue for the year
(in $ million)

  2013 2014 Growth
product revenue 10,738 10,785 0%
service revenue 5,524 5,757 4%
total 16,262 16,542 2%
gross profit 9,109 (56.0%) 9,180 (55.5%) 1%

Revenue of parts of EMC information infrastructure
(in $ billion)

  4Q14 Y/Y growth 2014 Y/Y growth
high end 1.19 -7% 4.15 -13%
unified and backup/recovery 1.88 1% 6.46 4%
emerging storage 0.80 40% 2,32 52%
storage (other and PS) 0.96 -2% 3.62 -4%

 To read the earning call transcript 

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