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EMC: Fiscal 1Q15 Financial Results

Storage revenue down 24% sequentially, completely flat yearly

(in $ million) 1Q14 1Q15 Growth
Revenue
5,479 5,613 2%
Net income (loss) 432 291 -33%

EMC Corporation reported first-quarter 2015 financial results.

Consolidated first-quarter revenue was $5.6 billion, up 2% year over year and up 6% on a constant currency basis.

GAAP earnings per weighted average diluted share was $0.13, down 32% year over year. Non-GAAP earnings per weighted average diluted share was $0.31, down 11% compared with the year-ago quarter.

EMC generated $1.1 billion in operating cash flow and $755 million in free cash flow in the first quarter, and ended the quarter with $13.5 billion in cash and investments.

The company repurchased approximately $1.5 billion worth of its common stock in the first quarter and returned approximately $230 million to shareholders via a quarterly dividend.

Joe Tucci, chairman and CEO, said: “We are pleased that we slightly exceeded our first-quarter non-GAAP EPS expectations; however, we fell a bit short on first-quarter storage revenue due to geo-political factors in Russia and China and not executing as crisply as we had expected in the first quarter. That said: we are confident that we will meet our business outlook for the year. Our investments in high-growth areas are bearing fruit, and the scale and strength of our federated businesses continue to provide a steadily increasing number of large, multi-national customers with the capabilities needed to build their digital agendas and undergo massive IT transformations.

Zane Rowe, CFO, said: “Our financial results were broadly in line with our expectations for the quarter and previously disclosed outlook for the year, thanks to the hard work of the entire EMC team. By realigning our organization and optimizing our investments, we were able to drive further cost efficiencies in the quarter. We are well positioned for the remainder of 2015 with a strong portfolio, tremendous potential in our six key growth opportunities, and increasing strategic relevance with customers. We will continue to aggressively look for opportunities to grow the revenue line, become more efficient and increase shareholder value.”

David Goulden, CEO, information infrastructure, said: “With most of the factors that impacted first-quarter storage revenue versus our expectations now behind us, the future is rich with opportunity for EMC information infrastructure. We continue to expand our lead in traditional storage market segments by bridging the gap between current and newer storage technologies to lead customers into a new digital age. We are evolving our storage portfolio and have leading positions in newer technologies – including flash, scale-out file and object storage, software-defined storage and converged infrastructure – that are growing much faster than traditional storage. Our market-segment share in most of these areas exceeds our strong leadership in traditional external storage. Finally, by working more closely with our Federation partners to leverage our best-of-breed portfolio and collective influence, our strategic relevance with our largest customers continues to grow and open up new opportunities.”

Business Highlights

  • EMC Information Infrastructure: First-quarter revenue was down 1% year over year, and up 3% on a constant currency basis. Information Storage revenue in the first quarter was flat, and up 3% on a constant currency basis. Within the Converged Infrastructure business, Vblock-related first-quarter revenue was up more than 30% compared to the year-ago quarter. Emerging Storage revenue had solid growth in the first quarter, with notably strong growth for XtremIO and Isilon products. RSA first-quarter revenue grew 1% year over year.
  • VMware: First-quarter 2015 revenue within EMC was up 12% year over year as the business continued making significant progress on its strategic initiatives focused on the software-defined data center, hybrid cloud solutions and end-user computing.
  • Pivotal: First-quarter revenue grew 8% year over year and, most importantly, Pivotal’s subscription revenue was up year over year in the first quarter as Pivotal continues its transition to a software subscription business model. Customers are benefiting from leveraging the Pivotal portfolio to build third-platform applications to transform their businesses.

Global Highlights
EMC’s consolidated first-quarter revenue from North America grew 5% year over year. AsiaPac and Japan and Latin America grew 1% and 8% year over year, respectively, and up 6% and 14% respectively on a constant currency basis. First-quarter revenue from EMC’s Europe, Middle East and Africa region was down 2% year over year, and up 5% year over year on a constant currency basis.

Business Outlook

  • Consolidated revenues are expected to be $25.7 billion for 2015.
  • Consolidated GAAP operating income is expected to be 13.5% of revenues for 2015 and consolidated non-GAAP4 operating income is expected to be 21.0% of revenues for 2015.
  • Consolidated GAAP earnings per weighted average diluted share are expected to be $1.23 for 2015 and consolidated non-GAAP4 earnings per weighted average diluted share are expected to be $1.91 for 2015.
  • The consolidated GAAP income tax rate is expected to be 22.6% and the consolidated non-GAAP4 income tax rate is expected to be 23.6% for 2015. This assumes that the U.S. R&D tax credit is enacted during 2015.
  • Consolidated net cash provided by operating activities is expected to be $5.7 billion for 2015 and free cash flow is expected to be $4.1 billion for 2015.
  • The weighted average outstanding diluted shares are expected to be 1.96 billion for 2015.
  • EMC expects to repurchase an aggregate of $3.0 billion of the company’s common stock in 2015.

Comments

This year, EMC is supposed to grow globally by 5% with expected revenue at $25.7 billion for FY15 ended in December. It was the same percentage from FY12 to FY13, and from FY13 to FY14, thanks to VMware and Pivotal rather than information infrastructure including storage.

For the most recent quarter, storage sales were completely flat year to year. Quarterly the figure is down 24%, an enormous percentage, but consider that former quarter ended in December is traditionally the best one for the company. Add to that the difficulties to succeed in Russia and China due to geo-political factor, as chairman and CEO Joe Tucci said in the press release, and two other reasons: some customers were waiting for an anticipated major product announcement in the high-end of company's backup and recovery portfolio, slower start than we the firm would have liked on the go-to-market side of the business due to the impact of the approximately 1,500 positions eliminated across EMC II in 1Q14.

Tucci also said: " We were disappointed that we fell a bit short of our 1Q14 revenue plan, approximately $75 million short. This $75 million revenue shortfall occurred in our storage business." David Goulden, information infrastructure CEO, added: "The amounts of unshipped storage product orders grew by $100 million versus 1Q14."

The future growth of EMC seems not to be anymore related to its storage business as recent products (Atmos, converged infrastructure, Isilon, XtremIO and ViPR) do not compensate at all its traditional activities (VMX and VMAX).  Within the converged infrastructure business, Vblock-related revenue was up by more than 30% in 1Q15 compared 1Q14. Tucci expects emerging storage portfolio to grow more than 30% for year 2015.

EMC storage revenue for 1Q14 and 1Q15
(in $ million)

  1Q14 1Q15 Growth
product revenue 2,302 2,179 -5%
service revenue 1,378 1,484 1%
total 3,680 3,663 -0%
gross profit 1,976 (53.7%) 1,976 (53.9%) 0%

Revenue of parts of EMC information infrastructure
(in $ million)

  1Q14 1Q15 Growth
high end 938 871 -7%
unified and backup/recovery 1,436 1,282 -11%
emerging storage* 476 542 14%
other storage 356 465 31%
storage PS 474 501 6%

 * Emerging storage business primarily includes product and maintenance revenues from Isilon, Atmos, VPLEX, ViPR, ScaleIO, Elastic cloud Storage Appliance, RecoverPoint, Data Computing Appliance, ASD Suites and vFlash and XtremIO families.

To read the earnings call transcript

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