EMC: Fiscal 2Q09 Financial Results

EMC Corporation reported second-quarter 2009 revenue of $3.26 billion, an increase of 3% sequentially and second-quarter GAAP net income attributable to EMC of $205.2 million, an increase of 6% sequentially. A continued focus on its technology leadership, global sales and service execution and achieving maximum operating efficiencies contributed to EMC’s sequential revenue and profit growth.

Second-quarter consolidated revenue of $3.26 billion declined 11% compared with the year-ago period or 8% adjusting for the impact from currency. Second-quarter 2009 GAAP net income attributable to EMC was $205.2 million or $0.10 per diluted share, compared with $360.1 million or $0.17 per diluted share for the second quarter of 2008. Second-quarter 2009 non-GAAP net income attributable to EMC was $358.9 million or $0.18 per diluted share, compared with $494.4 million or $0.24 per diluted share for the second quarter of 2008.(2) In the second quarter, EMC generated operating cash flow of $574 million, free cash flow of $400 million and ended the quarter with record cash and investments of $10 billion. Year to date EMC generated operating cash flow of $1.44 billion and free cash flow of approximately $1.1 billion.

Joe Tucci, EMC Chairman, President and Chief Executive Officer, said: "This marks another quarter of solid execution, and I am proud of the EMC and VMware teams around the world that produced these results. We are focused on four of the hottest and fastest-growing areas of IT spending – next-generation fully virtualized data centers; cloud computing; virtualized desktops and clients; and next-generation backup, recovery and archive solutions. This, together with our market leading products, solutions, services and proven go-to-market model gives us confidence that EMC will continue to gain market share this year. When IT markets resume to more normal spending rates, we expect EMC will return to generating double-digit revenue growth."

David Goulden, EMC Executive Vice President and Chief Financial Officer, said: "While global conditions remain challenging and our full-year view of declining IT spending remains unchanged, EMC’s second-quarter financial performance reflects customers’ budget stabilization and improved business predictability. Continued focus on helping customers address their most pressing IT priorities helped EMC’s Information Infrastructure business achieve balanced sequential revenue growth across all major geographies and in every business unit. Our sustained focus on cost containment and operational efficiency helped drive sequential growth in our Information Infrastructure gross and operating margins."

Second-Quarter Highlights
EMC’s Information Infrastructure business revenue for the second quarter – comprising Information Storage, RSA Security, and Content Management & Archiving – was $2.80 billion, an increase of 5% sequentially. The business was driven by strong sequential growth of the company’s market-leading EMC CLARiiON mid-tier storage systems; EMC Celerra unified storage systems; EMC’s backup and recovery software; RSA information security solutions; and EMC Global Services. During the quarter, the business also benefited from new, industry-leading products, technology integrations and product enhancements from across EMC’s Information Infrastructure portfolio. Second-quarter highlights also included customer demand for EMC’s:

• Market-leading networked storage solutions that deliver unprecedented levels of performance, scalability and efficiency, in particular EMC’s unified storage systems that connect to a variety of networks, its next-generation high-end systems for virtual data centers and its entire line of storage systems that leverage enterprise flash drives.
• RSA security solutions helping customers solve their most complex information security requirements while efficiently running their security operations, with particular strength in the quarter from the RSA security information and event management solutions, RSA data loss prevention suite, and the RSA identity protection and verification suite.
• Enterprise content management and archiving solutions that help customers advance business process and collaboration, while also driving efficiency, information governance and compliance.
• Broad consulting and professional services portfolio enabling customers to meet their near-term cost containment, business agility and IT optimization requirements, while supporting their longer-term strategies in areas such as the next-generation virtual data center and cloud computing.
• Expanding portfolio of increasingly strategic backup, recovery and archive solutions that leverage data deduplication to meet a variety of data protection requirements, maximize efficiency of storage environments and help customers curb costs.

EMC also announced the successful completion of its tender offer for all outstanding shares of common stock of Data Domain, Inc., with stockholders tendering approximately 90.3% of outstanding Data Domain shares. Together with the 3.9% of outstanding Data Domain shares EMC previously purchased, EMC now controls approximately 94.2% of Data Domain shares outstanding. EMC expects to effect a second-step merger and close its acquisition of Data Domain today. Upon completion of the acquisition, Data Domain will form the foundation of a new, high-growth product division within EMC’s Information Storage business focused on the development and delivery of next-generation disk-based backup, recovery and archive solutions. For its quarter ending June 30, 2009, Data Domain achieved consolidated revenues of nearly $86 million, an increase of 40% compared with the year ago period.

VMware, which is majority-owned by EMC, contributed second-quarter revenue of $455 million.

EMC consolidated second-quarter revenue from the United States was $1.68 billion, up 3% sequentially, and represented 52% of total second-quarter revenue. Revenue from EMC’s operations outside of the United States was $1.58 billion, up 4% sequentially, and represented 48% of total second-quarter revenue.

Business Outlook
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 business outlook and certain items impacting 2009 set forth in prior EMC news releases. All dollar amounts and percentages set forth below should be considered to be approximations.

• Consolidated EMC revenues are expected to be $13.8 billion in 2009, including $200 million of revenues from Data Domain. Consolidated third-quarter revenues are expected to increase 2% to 3% from the second quarter 2009 excluding revenues from the acquisition of Data Domain, and are expected to increase 4% to 5% including revenues from the acquisition of Data Domain.
• Consolidated GAAP diluted earnings per share are expected to be $0.51 in 2009, including the negative impact of a little less than $0.02 per share from the acquisition of Data Domain.
• Consolidated non-GAAP diluted earnings per share, excluding the impact of restructuring and acquisition-related charges, stock-based compensation expense, intangible asset amortization and a gain recognized from holdings in Data Domain common stock are expected to be $0.82 in 2009. The acquisition of Data Domain is expected to have a neutral impact on non-GAAP diluted EPS for the full-year 2009.
• Consolidated restructuring and acquisition-related charges, stock-based compensation expense and intangible asset amortization are expected to be $0.04, $0.20 and $0.08 per diluted share, respectively in 2009. Expected to offset these charges is a $0.01 per diluted share gain recognized from holdings in Data Domain common stock.
• Information storage GAAP gross margins are expected to be 50% for the second half of 2009. Excluding the impact of stock-based compensation expense, which impacts gross margins by 0.6% and intangible asset amortization, which impacts gross margins by 0.4%, information storage non-GAAP gross margins are expected to be 51% for the second half of 2009.
• The consolidated GAAP income tax rate is expected to be 17% in 2009. Excluding the impact of restructuring and acquisition-related charges, stock-based compensation expense, intangible asset amortization and gain recognized from holdings in Data Domain common stock, which collectively impact the tax rate by 4%, the consolidated non-GAAP income tax rate is expected to be 21% for 2009.
• In 2010, savings from cost reduction actions are expected to reduce the company’s 2008 cost base by $500 million.
• In 2010, revenues from Data Domain and EMC Avamar products and services are expected to exceed $1 billion.