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EMC: Fiscal 4Q10 Financial Results

Storage up 17% quarterly, 19% for the year at $12.7 billion

in US$ millions) 4Q09 4Q10 FY09   FY10
 Revenues 4,100 4,889 14,026  17,015
 Growth   19%   21%
 Net income (loss) 400.9 652.4 1,122 1,970

Storage only

in US$ millions) 4Q09 4Q10  Growth FY09   FY10 Growth
 Products 2,175 2,557  18% 7,198  8,824  23%
 Services  947 1,085  15%  3,461 3,875  12%
 TOTAL 3,122 3,642  17% 10,659 12,699  19%

 


EMC Corporation reported record fourth-quarter and full-year 2010 financial results. 

Highlights:

  • Record quarterly and full-year revenue up 19% and 21% year over year, respectively
  • Record quarterly and full-year GAAP net income up 61% and 75% year over year, respectively
  • Record quarterly and full-year non-GAAP net income up 32% and 46% year over year, respectively
  • Record quarterly and full-year free cash flow

For the fourth quarter 2010, the company achieved all-time record consolidated revenue, net income and free cash flow. Full-year 2010 results were highlighted by all-time record consolidated revenue and profit that exceeded prior company outlook and record free cash flow. 
 

For the fourth quarter, consolidated revenue was $4.9 billion, an increase of 19% compared with the year-ago quarter; GAAP net income attributable to EMC increased 61% year over year to $628.6 million; and GAAP diluted earnings per share were $0.29, up 53% year over year.  Non-GAAP(1) net income attributable to EMC for the fourth quarter was $920.1 million, an increase of 32% compared with the year-ago quarter, and non-GAAP earnings per diluted share were $0.42, an increase of 27% year over year.

During the quarter EMC generated record quarterly operating cash flow and free cash flow of $1.5 billion and $1.2 billion, which grew 50% and 54% year over year, respectively. For the quarter and full-year 2010, EMC expanded gross margin and operating margin percentages substantially on a year-over-year basis. The company completed the quarter with $9.5 billion in cash and investments.

For the full year 2010, consolidated revenue was $17.0 billion, an increase of 21% year over year; GAAP net income attributable to EMC increased 75% year over year to $1.9 billion; and GAAP diluted earnings per share were $0.88, up 66% year over year. Non-GAAP net income attributable to EMC for 2010 was $2.7 billion, an increase of 46% year over year, and non-GAAP earnings per diluted share were $1.26, an increase of 40% year over year. The company achieved record full-year operating cash flow and free cash flow of $4.5 billion and $3.4 billion, which grew 36% and 31%, respectively, compared with 2009. 

Joe Tucci, EMC Chairman and Chief Executive Officer, said: "EMC’s performance in 2010 was the best in company history, marked by rapid growth, market share gains, financial leverage and significant investment in technology innovation. The platform for change in the IT industry has arrived with the biggest opportunity residing at the intersection of trusted cloud computing, enterprise data and ‘Big Data.’ Equipped with the strongest, most distinctive product and services portfolio and strategic partners, we have never been more confident in EMC’s position to lead this transformational shift to IT as a service." 

David Goulden, EMC Executive Vice President and Chief Financial Officer, said: "In 2010 we executed our triple play impressively – simultaneously taking market share, reinvesting meaningfully in our business and delivering improved profitability. Tremendous progress on all of these objectives throughout the year puts EMC in its best financial and operational shape ever. We are in great position to continue to deliver our triple play results in 2011; continue to achieve solid double-digit revenue and profit growth, expand operating margins and grow free cash flow for the year; and further strengthen EMC’s strategic position for the long term."

Fourth-Quarter and 2010 Highlights

Fourth-quarter highlights included strong customer demand and double-digit revenue growth for the company’s high-end EMC Symmetrix storage product portfolio, which increased 19% compared with the year-ago quarter, and EMC’s mid-tier storage product portfolio, which grew revenue 23% year over year. Revenues from EMC’s RSA information security business and VMware, which is majority-owned by EMC, hit record amounts, growing 28% and 38% year over year, respectively. Additional fourth-quarter highlights included continued strong customer demand for EMC’s backup and recovery solutions as part of the company’s fast-growing Backup and Recovery Systems Division. Also in the fourth quarter, EMC completed its acquisition of Isilon Systems. 

EMC consolidated fourth-quarter revenue from the United States reached $2.6 billion, an increase of 20% year over year, representing 53% of consolidated fourth-quarter revenue. Revenue from EMC’s business operations outside of the United States reached $2.3 billion, an increase of 19% year over year, representing 47% of consolidated fourth-quarter revenue. Within this, revenue increased 13%, 30% and 34% year over year, respectively, in EMC’s Europe, Middle East and Africa; Asia Pacific and Japan; and Latin America regions.

Throughout 2010, EMC executed on numerous strategic initiatives that collectively helped strengthen the company’s technology leadership and services expertise in enterprise data, cloud computing and ‘Big Data’; advance its competitive lead; and gain market share. This included sustained aggressive investment in research and development, totaling 11% of annual consolidated 2010 revenue, which resulted in broad and deep innovation across all of EMC’s business units. EMC also continued to use its financial strength to make strategic acquisitions targeted at high-growth areas, including Isilon, data warehousing and business analytics pioneer Greenplum, and enterprise governance, risk and compliance (eGRC) software provider Archer Technologies. Additionally, the company further strengthened alignment with strategic partners demonstrated by the strong momentum of VCE, The Virtual Computing Environment Company, and expanded relationships with technology, solutions and service providers around the world. 

Business Outlook
The following statements are based on current expectations. All dollar amounts and percentages set forth below should be considered to be approximations.

  • Consolidated EMC revenues are expected to be $19.6 billion for 2011.
  • Consolidated GAAP operating income is expected to be 16% of revenues for 2011 and consolidated non-GAAP operating income is expected to be 23% of revenues for 2011. Excluded from consolidated non-GAAP operating income are restructuring and acquisition-related charges, stock-based compensation expense and intangible asset amortization, which are expected to account for less than 1%, 5% and 2% of revenues, respectively.
  • Total consolidated non-operating expense, which includes investment income, interest expense and other expense, is expected to be $100 million in 2011.
  • Consolidated GAAP net income is expected to be $2.4 billion in 2011 and consolidated non-GAAP net income is expected to be $3.25 billion in 2011. Excluded from consolidated non-GAAP net income are restructuring and acquisition-related charges, stock-based compensation expense and intangible asset amortization, which are expected to account for approximately $100 million, $600 million and $200 million, respectively.
  • Consolidated GAAP diluted earnings per share are expected to be $1.07 for 2011 and consolidated non-GAAP diluted earnings per share are expected to be $1.46 for 2011. Excluded from consolidated non-GAAP diluted earnings per share are restructuring and acquisition-related charges, stock-based compensation expense and intangible asset amortization, which are expected to be $0.03, $0.27 and $0.09 per diluted share, respectively, for 2011.
  • The consolidated GAAP income tax rate is expected to be 20% for 2011. Excluding the impact of restructuring and acquisition-related charges, stock-based compensation expense and intangible asset amortization, which are expected to collectively impact the tax rate by 2%, the consolidated non-GAAP income tax rate is expected to be 22% for 2011. 
  • The weighted average outstanding diluted shares are expected to be 2.23 billion for 2011.
  • EMC expects to repurchase $1.5 billion of the company’s stock in 2011.

Comments

Abstracts of the earnings call transcript:


David Goulden, CFO:

"Let me give you an example from this past quarter that illustrates why VMAX is the high-end platform of choice. One of the largest plastic manufacturers in the world recently consolidated their three main data centers globally and was looking to replace the entire storage infrastructure in Europe. Because they had to use VMware for server and desktop virtualization, VM integration was a chief consideration for the storage they selected.

"Our ability to provide highly reliable and scalable storage solution, highly integrated with vCenter was key to displacing Hitachi here. Moreover, our robust backup offerings and our integration with VMware's virtual disk development API enabled us to become this customer's global backup standard as well. They're now using Avamar, Networker and Data Domain to meet their backup requirements which, like many customers, vary throughout the global environments.

"Mid-tier product revenue grew 23% in Q4 and was up 20% from Q3, representing a healthy acceleration from the sequential growth of 5% last quarter.

"Our Backup Recovery Systems division, which includes Data Domain, Avamar and Networker continue to fire on all cylinders.

"Isilon's momentum continued with record revenue in Q4 on stand-alone basis, well above the company's expectations prior to the acquisition.

"On a going forward basis, Isilon will be included in our mid-tier storage number, but it was not included in our Q4 revenue as we closed this transaction very late in the quarter. Complementary to Isilon is our Atmos offering, which uniquely focuses on globally distributed environments with object interfaces to data. We remain confident that the two together will reach a $1 billion annual run rate during the second half of 2012.

"Vblock customers in Q4 includes service providers like Sonda Brazil, our first official VCE partner in Brazil, who'll be offering new cloud computing services to its customer based upon Vblocks. And Harris Corporation, which is investing in its cyber integration center to offer trusted enterprise cloud solutions to its customers."



Joe Tucci, chairman and CEO:

"For sure, our relationship with Dell has moved from strategic to tactical. For sure, it’s now mainly competitive. To give you some evidence of that fact, the Dell OEM business with CLARiiON, our CLARiiON business to Dell that they OEM was down to approximately $55 million in Q4. As a reminder, that kind of as a Q4 has been historically our largest quarter of the year with Dell. So the Dell-driven revenue now, which is their OEM business, the one they drive by themselves, is actually getting quite small now. And I might add that our other channel, mid-tier channels grew over 44% in Q4. So, obviously, you can see where our major focus. Now that being said, we have thousands and thousands of joint customers with Dell that we sold together, and Dell sold using our products, and we will - and a lot many of those customers expect us to work together. And for our part, we’re most willing to work together, and there are discussions underway. So while it's highly, highly unlikely, almost impossible that Dell sell the VNXe. There are some considerations that they will resell VNX, and those discussions are undergoing, but I want to kind of end it where I started."

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