EMC: Fiscal 4Q08 Financial Results

EMC Corporation reported fourth-quarter 2008 revenue of $4.02 billion, an increase of 8% sequentially and 5% year over year, representing an all-time EMC record for quarterly revenue.

Highlights

• First-ever $4 billion-plus quarter: revenue up 8% sequentially; 5% year over year
• Fourth-quarter operating cash flow of $1.1 billion: up 9% year over year
• Record full-year revenue of $14.88 billion: up 12% year over year
• Sixth consecutive year of double-digit annual revenue growth

Fourth-quarter GAAP net income was $288.0 million or $0.14 per diluted share, which includes a $0.10 restructuring charge. Fourth-quarter non-GAAP net income was $646.8 million or $0.32 per diluted share, 7% higher compared with the year-ago period.

For 2008, EMC posted total consolidated revenue of a record $14.88 billion, an increase of 12% year over year and representing EMC’s sixth consecutive year of double-digit annual revenue growth. GAAP net income for 2008 was $1.35 billion or $0.64 per diluted share. Non-GAAP net income for the full year was $2.16 billion or $1.04 per diluted share, an increase of 14% year over year.

During the fourth quarter, EMC generated operating cash flow of $1.1 billion and free cash flow of $775 million, each increasing 9% year over year. For the year, EMC’s operating cash flow was $3.6 billion, an increase of 14% compared with 2007, and free cash flow was $2.6 billion, an increase of 17% year over year.

Joe Tucci, EMC Chairman, President and Chief Executive Officer, said: "EMC’s ability to achieve record financial results despite the macro-economy was driven by tight alignment with key customer priorities; the strongest and most integrated product, services and partner portfolio in company history; and solid execution throughout the year. We’ve entered 2009 with a robust and diversified business model, which we intend to leverage to extend our technology lead and gain market share."

Tucci added: "EMC has a firm grasp on what’s required to thrive in tough times and emerge even stronger in the next growth cycle. We remain intensely focused on customers’ top priorities — saving money, attaining a faster ROI, reducing risk and preparing for the delivery of next-generation data centers. Finally, we remain committed to investing heavily in research and development to extend our technology lead and maintain rapid product rollout cycles."

David Goulden, EMC Executive Vice President and Chief Financial Officer, said: "Financial strength and flexibility are high on the list of EMC’s most strategic advantages. Throughout 2008 we managed our spending carefully, while reinvesting in future growth opportunities, strengthening the competitiveness of our solutions and extending our market leadership. Through 2009 we will continue to streamline operations, reduce costs and strengthen the efficiencies of our global operations."

EMC’s best estimate is that 2009 global IT spending will decline as a percentage in the mid to high single digits compared with 2008. The company expects the markets that it addresses will perform slightly better than the overall IT market. The company also expects that a higher than usual percentage of the full-year IT spending will take place in the second half of the year.

Fourth-Quarter Highlights
EMC’s Information Infrastructure business revenue for the fourth quarter — comprising Information Storage, RSA Security, and Content Management & Archiving — was $3.5 billion, an increase of 8% sequentially and up 2% compared with the year-ago period. This growth reflects the completeness of EMC’s broad portfolio of products and services uniquely suited to help customers address the growth and management of information and drive cost savings across their IT environments.

Fourth-quarter Information Infrastructure business highlights included strong customer demand for EMC’s:

• Industry-leading networked storage solutions, with particularly strong revenue growth from EMC’s unified storage systems that connect to a variety of networks.
• Broad portfolio of industry-leading backup, recovery and archive solutions that leverage data de-duplication to meet their data protection requirements, reduce cost and mitigate risk.
• RSA security information & event management (SIEM) solutions and the RSA data loss & prevention (DLP) suite.
• Services portfolio that spans across EMC’s Information Storage, RSA Security and Content Management & Archiving business units.

VMware, which is majority-owned by EMC, contributed fourth-quarter revenue of $514 million.

EMC consolidated fourth-quarter revenue from the United States increased 6% compared with the same period a year ago. Fourth-quarter revenue from EMC’s operations outside of the United States grew 4% year over year and represented 46% of total fourth-quarter revenue.

2008 Highlights
Full-year 2008 consolidated revenue was $14.88 billion, 12% higher than the year-ago period. EMC’s Information Infrastructure business grew revenue 9% to $13.0 billion, driven by the introduction of new, industry-leading products, the quality and breadth of EMC’s global services portfolio, technology integrations and product enhancements from across all business units, strengthening the company’s market leadership and competitiveness.

In addition, VMware contributed revenue of $1.88 billion.

Full-year 2008 consolidated revenue from EMC’s operations outside of the United States grew 17% year over year and represented 46% of total annual revenue, with the Europe, Middle East & Africa (EMEA), Asia-Pacific & Japan (APJ) and Latin America regions posting double-digit year-over-year revenue growth. Revenue from EMC’s United States operations increased 9% compared with 2007 and represented 54% of total annual revenue.

Certain Items Impacting 2009
The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. These statements do not give effect to the potential impact of mergers, acquisitions, divestitures or business combinations that may be announced or closed after the date hereof. These statements supersede all prior statements regarding 2009 financial results set forth in prior EMC news releases.

All dollar amounts and percentages set forth below should be considered to be approximations.

The following items are expected
to impact EMC’s 2009 results:

• Savings from EMC’s restructuring program are expected to reduce the company’s 2008 cost base by $350 million, with about a third benefiting cost of sales and the remaining representing lower operating expenses. The savings are expected to be weighted toward the latter half of 2009.
• Transition costs in 2009 are expected to be $60 million, primarily impacting operating expenses.
• The net impact of lower software capitalization and increased amortization under Statement of Financial Accounting Standard No. 86, ‘Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,’ is expected to increase total costs and expenses by $100 million in 2009.
• The adoption of FASB Staff Position No. APB 14-1, "Accounting for Convertible Debt Instruments that May be Settled in Cash upon Conversion (Including Partial Cash Settlement)" (FSP No. APB 14-1) is expected to cause a non-cash increase to interest expense of $108 million in 2009.
• Interest income in 2009 is expected to be $70 million lower than 2008 due to lower interest rates.
• EMC expects transition costs, net impact of software capitalization and amortization, adoption of FSP No. APB 14-1 and reduced interest income to reduce both GAAP and non-GAAP diluted earnings per share by $0.12 in 2009 compared to 2008.
• Restructuring expenses in 2009 are expected to be $75 million.
• The GAAP tax rate is expected to be 18%. The non-GAAP tax rate excluding stock-based compensation, intangible amortization and restructuring is expected to be 21%.

Due to the current macro-economic conditions and limited visibility, EMC is not offering revenue, EPS or other financial outlook at this time.