EMC: Fiscal 4Q09 Financial Results

EMC Corporation reported financial results for the fourth quarter of 2009.

Ongoing strategic investments aligned to key customer priorities helped EMC achieve record fourth-quarter revenue. A continued focus on efficiencies and expense controls helped deliver expanded gross and operating margins, record quarterly free cash flow and fourth-quarter profit that exceeded prior company outlook.

Consolidated revenue for the fourth quarter of 2009 reached a record $4.1 billion, an increase of 17% sequentially, 2% year over year and $100 million more than the outlook provided by EMC for the fourth quarter of 2009. Fourth-quarter GAAP net income attributable to EMC reached $426.5 million, an increase of 43% sequentially and 58% year over year. Fourth-quarter GAAP diluted earnings per share were $0.20, up 43% sequentially and 54% compared with the year-ago quarter. Non-GAAP net income attributable to EMC for the fourth quarter was $695.5 million, an increase of 45% sequentially and 11% compared with the fourth quarter of 2008. Non-GAAP earnings per diluted share were $0.33 for the fourth quarter, $0.03 ahead of the company outlook provided for the fourth quarter of 2009. Fourth-quarter non-GAAP earnings per diluted share increased 43% sequentially and were up 6% year over year.

During the fourth quarter, EMC expanded gross and operating margins on a sequential basis, generated operating cash flow of $1.0 billion and achieved record quarterly free cash flow of $793 million. EMC completed the fourth quarter with $9.4 billion in cash and investments.

For the full year 2009, EMC achieved total consolidated revenue of $14.0 billion. GAAP net income attributable to EMC for 2009 was $1.1 billion or $0.55 per diluted share. Non-GAAP net income attributable to EMC for the full year was $1.9 billion or $0.90 per diluted share. For comparison, GAAP net income attributable to EMC for 2008 was $1.3 billion or $0.61 per diluted share and non-GAAP net income attributable to EMC for 2008 was $2.1 billion or $1.00 per diluted share. For 2009, EMC’s operating cash flow was $3.3 billion and free cash flow was $2.6 billion, an increase of 2% year over year.

Joe Tucci, EMC Chairman and Chief Executive Officer, said: "Aggressive investment in core technology and strategic partnerships during the downturn, combined with heightened operational discipline, leaves EMC stronger than ever financially and intensely focused on our customers. We are well positioned to lead the industry’s newest and potentially largest wave of IT, which we and others refer to as cloud computing. As we execute on our vision for where the industry is heading, EMC’s primary focus is on helping customers safely build out their next-generation, fully virtualized data centers and lead them along the journey to private cloud computing, which offers the promise of a dramatically more efficient and effective model for delivering IT as a service."

David Goulden, EMC Executive Vice President and Chief Financial Officer, said, "Emerging from the worst global recession in company history, EMC is in the best financial and operational shape ever. We refined our financial model to a new level of efficiency and cost discipline, while continuing to invest in strategic technologies and high-growth markets. We rolled out new and more-advanced solutions and services with the best quality in our history and gained market share. With this positive momentum, EMC stands well positioned to continue to gain share in key markets and drive even greater profitability in 2010."

Fourth-Quarter Business Highlights
EMC’s Information Infrastructure business for the fourth quarter – comprising product and service revenue from the company’s Information Storage, RSA Security, and Content Management and Archiving business segments – reached $3.5 billion, an increase of 15% sequentially. Within the Information Infrastructure business, the company’s Information Storage and Content Management and Archiving business segments achieved double-digit sequential revenue growth and EMC’s RSA Security business achieved record quarterly revenue. Fourth-quarter highlights included solid customer demand and strong sequential revenue growth for EMC’s Data Domain and Avamar next-generation backup and recovery solutions, EMC’s market-leading Symmetrix and CLARiiON networked storage systems and EMC Celerra unified storage systems; and continued strong demand for EMC’s RSA information security solutions, consumer and small business-focused Iomega products and EMC’s broad portfolio of consulting and professional services.

VMware, which is majority-owned by EMC, contributed fourth-quarter revenue of $607 million.

EMC consolidated fourth-quarter revenue from the United States reached $2.2 billion, an increase of 14% sequentially and 1% year over year, representing 53% of consolidated fourth-quarter revenue. Revenue from EMC’s business operations outside of the United States reached $1.9 billion, an increase of 20% sequentially and 4% year over year, representing 47% of consolidated fourth-quarter revenue.

2009 Highlights
Full-year 2009 consolidated revenue was $14.0 billion. Revenue from EMC’s Information Infrastructure business reached $12.0 billion and VMware contributed revenue of $2.0 billion. Throughout the year, EMC executed on numerous strategic initiatives that collectively helped strengthen the company’s market leadership and advance its competitive lead, including:

• Sustained aggressive investment in research and development, totaling 12% of annual consolidated 2009 revenue, resulted in innovation across all business units. For example, EMC introduced an entirely new approach to high-end data storage with the EMC Virtual Matrix Architecture and EMC Symmetrix V-Max storage systems, unprecedented automation capabilities across all primary EMC storage platforms with the new EMC fully automated storage tiering (FAST) technology, and more than 30 new EMC services and solutions to drive the acceleration of private cloud computing.
• Use of financial strength to make strategic acquisitions, including deduplication storage solutions leader Data Domain, and increase investment levels in higher-growth markets and geographies.
• Tighter alignment with strategic partners, demonstrated by the Virtual Computing Environment coalition formed by EMC and Cisco with VMware, the extension of EMC’s strategic alliance with Microsoft, as well as enhanced technology integration and expanded solutions and services support with major industry players such as Cisco, VMware, Microsoft, Dell and others.
• Further movement and penetration down market, including a wave of new consumer storage technologies and services from Iomega and Mozy.

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 2010 financial results 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 $16.0 billion for 2010.
• 2010 GAAP research and development expense and non-GAAP R&D expense are each expected to increase 20% over 2009. Excluded from the increase in non-GAAP R&D expense is stock-based compensation expense of $42 million and intangible asset amortization of $8 million.
• Transition costs to a more efficient cost structure are expected to be $50 million in 2010.
• GAAP operating income is expected to be 13% of revenues for 2010 and non-GAAP operating income is expected to be 20% of revenues for 2010. Excluded from non-GAAP operating income are restructuring and acquisition-related charges, stock-based compensation expense and intangible asset amortization, which account for less than 1%, 5% and 2% of revenues, respectively.
• Total non-operating expense, which includes investment income, interest expense and other expense, is expected to be $90 million in 2010.
• Consolidated GAAP diluted earnings per share are expected to be $0.78 for 2010.
• Consolidated non-GAAP diluted earnings per share, excluding the impact of restructuring and acquisition-related charges, stock-based compensation expense and intangible asset amortization are expected to be $1.12 for 2010.
• Consolidated restructuring and acquisition-related charges, stock-based compensation expense and intangible asset amortization are expected to be $0.02, $0.24 and $0.08 per diluted share, respectively for 2010.
• The consolidated GAAP income tax rate is expected to be 17% for 2010. Excluding the impact of restructuring and acquisition-related charges, stock-based compensation expense and intangible asset amortization, which collectively impact the tax rate by 3%, the consolidated non-GAAP income tax rate is expected to be 20% for 2010. Both GAAP and non-GAAP income tax rates assume that the U.S. research and development tax credit will be re-enacted in 2010.
• The weighted average outstanding diluted shares are expected to be 2.12 billion for 2010.
• EMC expects to repurchase up to $1.0 billion of the company’s common stock.