EMC: Fiscal 4Q12 Financial Results

EMC Corporation reported record financial results for both the fourth quarter and full year 2012.

For the fourth quarter, the company achieved record quarterly consolidated revenue, net income and EPS on a GAAP and non-GAAP basis. Full-year 2012 results were highlighted by record revenue, net income, EPS, operating cash flow and free cash flow. The results were also highlighted by record quarterly and full-year gross margins on a GAAP and non-GAAP basis.

Fourth-quarter revenue was $6.0 billion, an increase of 8% compared with the year-ago quarter. Fourth-quarter GAAP net income attributable to EMC increased 5% year over year to $870 million. Fourth-quarter GAAP earnings per weighted average diluted share increased 3% year over year to $0.39. Non-GAAP net income attributable to EMC for the fourth quarter was $1.2 billion, an increase of 12% compared with the year-ago quarter. Fourth-quarter non-GAAP earnings per weighted average diluted share were $0.54, an increase of 10% year over year.

Full-year 2012 revenue was $21.7 billion, an increase of 9% year over year. GAAP net income attributable to EMC for 2012 increased 11% year over year to $2.7 billion, and GAAP earnings per weighted average diluted share were $1.23, up 12% year over year. Non-GAAP2 net income attributable to EMC for 2012 was $3.8 billion, an increase of 11% year over year, and non-GAAP earnings per weighted average diluted share were $1.70, an increase of 13% year over year. The company’s fourth-quarter and full-year non-GAAP results include the tax benefit related to the U.S. research and development tax credit for 2012.3

For 2012, EMC generated operating cash flow of $6.3 billion and free cash flow of $5.0 billion, increases of 10% and 14% year over year, respectively. For the quarter and full-year, EMC expanded GAAP and non-GAAP gross margin and operating margin percentages on a year-over-year basis. The company ended the year with $11.4 billion in cash and investments.

Joe Tucci, EMC chairman and CEO, said: "EMC achieved its first $6 billion quarter for revenue, capping off a record breaking 2012. Driving our strong results is the strength of our leading-edge products and services, our solid operational and financial model, and consistent execution against our strategy. EMC remains squarely at the center of the most disruptive and opportunity-rich shift in IT history, propelled by the benefits of cloud computing, Big Data and trusted IT. These high-priority IT spending areas are core to our strategic focus and represent market segments where EMC has established leadership positions and competitive advantage."

David Goulden, EMC president and COO, said: "With outstanding execution by EMC employees worldwide, we once again delivered our triple play in 2012 – simultaneously taking market share, reinvesting for growth and delivering improved earnings. EMC’s broad, best-of-breed portfolio of products and services, which offer customers greater efficiency, control and choice as they transform both their IT and their businesses, is a key and differentiating element of our continued financial success. We believe EMC is well positioned to expand our leadership in the market segments we serve, deliver on our triple play again in 2013, and leverage our strong balance sheet to invest heavily in leading edge technology for cloud computing, Big Data and trusted IT."

Fourth-Quarter Highlights
In the fourth quarter, revenue from EMC’s networked storage platforms portfolio, which includes EMC’s high-end and mid-tier storage platform products, grew 6% year over year. Revenue from EMC’s high-end Symmetrix storage product portfolio increased 6% compared with the year-ago quarter. Revenue from EMC’s mid-tier storage products portfolio increased 5% year over year, led by continued revenue growth of EMC’s Isilon scale-out NAS products. The company also saw continued strong demand for its flash-based caching and flash-based storage solutions.

Additional fourth-quarter highlights included strong year-over-year revenue growth for EMC’s Greenplum product portfolio. VMware, the global leader in virtualization and cloud infrastructure, grew revenue 22% year over year. EMC’s VSPEX reference architecture solutions continued to gain momentum with rapid adoption and increasing popularity among customers and partners who have sold more than 1,300 VSPEX solutions since their launch in April 2012. VCE, in converged cloud infrastructure systems, continued to gain traction and exceed company expectations as demand for Vblock systems showed strong year-over-year growth. Finally, EMC continued to expand its Service Provider Program with fourth-quarter revenue from service provider partners growing more than 70% year over year.

EMC’s consolidated fourth-quarter revenue from the United States increased 5% year over year to $3.1 billion, representing 52% of consolidated fourth-quarter revenue. Revenue from EMC’s business operations outside of the United States increased 12% year over year to $2.9 billion and represented 48% of consolidated fourth-quarter revenue. Within this, revenue from EMC’s EMEA region grew 11% year over year, and revenue from EMC’s AsiaPac and Japan region increased 19% year over year.

Business Outlook 

• Consolidated revenues are expected to be $23.5 billion for 2013.
• Consolidated GAAP operating income is expected to be 18% of revenues for 2013 and consolidated non-GAAP operating income is expected to be 25.5% of revenues for 2013. Excluded from consolidated non-GAAP operating income are stock-based compensation expense, intangible asset amortization, restructuring and acquisition-related charges and the amortization of VMware’s capitalized software from prior periods which account for 4.7%, 1.7%, 1.0% and 0.1% of revenues, respectively.
• Total consolidated GAAP and non-GAAP non-operating expense, which includes investment income, interest expense and other income and expense, is expected to be $280 million in 2013.
• Consolidated GAAP net income attributable to EMC is expected to be $3.0 billion in 2013 and consolidated non-GAAP net income attributable to EMC is expected to be $4.1 billion in 2013. Excluded from consolidated non-GAAP net income attributable to EMC are stock-based compensation expense, intangible asset amortization, restructuring and acquisition-related charges, the amortization of VMware’s capitalized software from prior periods and the benefit of the 2012 R&D tax credit which account for $730 million, $260 million, $160 million, $15 million and ($60 million), respectively.
• Consolidated GAAP earnings per weighted average diluted share are expected to be $1.35 for 2013 and consolidated non-GAAP earnings per weighted average diluted share are expected to be $1.85 for 2013. Excluded from consolidated non-GAAP earnings per weighted average diluted share are stock-based compensation expense, intangible asset amortization, restructuring and acquisition-related charges, the amortization of VMware’s capitalized software from prior periods and the benefit of the 2012 R&D tax credit which account for $0.33, $0.12, $0.07, $0.01 and ($0.03) per weighted average diluted share, respectively.
• The consolidated GAAP income tax rate is expected to be 20.5% for 2013. Excluding the tax impact of stock-based compensation expense, intangible asset amortization, restructuring and acquisition-related charges, the amortization of VMware’s capitalized software from prior periods, and the benefit of the 2012 R&D tax credit which collectively impact the tax rate by 3%, the consolidated non-GAAP income tax rate is expected to be 23.5% for 2013.
• GAAP net income attributable to the non-controlling interest in VMware is expected to be $160 million and non-GAAP net income attributable to the non-controlling interest in VMware is expected to be $280 million for 2013. Excluded from non-GAAP net income attributable to the non-controlling interest in VMware are stock-based compensation expense, intangible asset amortization, restructuring and acquisition-related charges, the amortization of VMware’s capitalized software from prior periods, and the benefit of the 2012 R&D tax credit which account for $89 million, $19 million, $14 million, $4 million and ($6 million), respectively. The incremental dilution attributable to the shares of VMware held by EMC is expected to be $15 million for 2013.
• The weighted average outstanding diluted shares are expected to be 2.2 billion for 2013.
• EMC expects to repurchase $1 billion of the company’s common stock in 2013.