EMC, With Strong Q4, Looks To The Cloud In 2010

Strong fourth-quarter 2009 revenue and earnings and a higher-than-expected outlook for 2010 combined to give storage leader EMC momentum as the economy -- and IT spending -- start inching back to normalcy.

EMC said Tuesday it is looking for solid growth in its core businesses; new opportunities in fast-growth markets including storage, virtualization and cloud computing; and an ever-larger technology and channel partner ecosystem to drive continued success in 2010.

EMC on Tuesday said that revenue in its fourth quarter of 2009, which ended Dec. 31, reached $4.1 billion, up 2 percent from the $4 billion reported in the fourth quarter of 2008 and $100 million more than EMC's previous guidance.

The company reported income for the fourth quarter of 2009 of $426.5 million, or 20 cents per share, up significantly from the $270 million, or 13 cents per share, reported for the same period in 2008.

For the fourth quarter of 2009, storage product and services revenue fell slightly compared to the same quarter of 2008, as did revenue from content management and archiving, and from information infrastructure.

However, revenue from EMC's security business and from its majority ownership of VMware both showed strong growth. VMware on Monday reported record fourth-quarter revenue but falling profits compared to the prior year.

The strong fourth quarter was not enough to pull EMC's full-year revenue and income over that of 2008. For the year, EMC reported revenue of $14 billion, down about 6 percent from the $14.9 billion it reported in 2008. The company also reported income of $1.1 billion, or 55 cents per share, for all of 2009, down from the $1.3 billion, or 61 cents per share, it reported in the previous year.

The economic environment in 2009 was pretty much as EMC expected it to be, with reasonable stability characterizing the fourth quarter, said David Goulden, executive vice president and CFO of EMC.

However, Goulden said, some of the uncertainty reflected in 2009 is wearing off. "While there's still uncertainty as customers evaluate their own budgets and plans, we do expect 2010 to be better than 2009," he said.

Goulden said EMC expects overall IT spending to grow between 3 percent and 5 percent in 2010 over 2009, and said that will result in an increase of EMC's total addressable market of between 6 percent and 8 percent.

"Given EMC's focus on the cloud, and our leadership position in the most important opportunities such as storage tiering, virtualization, security, next generation backup, etc., we believe that EMC is poised to grow even faster and gain share," he said.

As a result of those factors, EMC expects 2010 full-year revenue to hit $16 billion, up 14 percent over 2009's revenue, Goulden said. He also expects non-GAAP margins of 20 percent, and non-GAAP earnings per share of $1.12, the latter of which is up 24 percent over that of 2009.

"(That) will certainly result in significant share gain across our businesses," he said.

Next: EMC Looks To Cloud Computing As The Next Wave

Joe Tucci, EMC's chairman, president and CEO, said he expected the economic recovery to continue in 2010, with single-digit GDP (gross domestic product) growth worldwide moderated by "caution and choppiness" because of the lag in employment.

For EMC, however, the IT business in 2010 will be marked by CIOs focusing their spending priorities on storage, virtualization and security, three areas in which EMC offers best-of-breed solutions, Tucci said.

"What gives us optimism not only in 2010 but in the longer term is our focus on several rapidly emerging, multibillion-dollar markets, which we believe present double-digit growth opportunities for EMC," he said.

The first of those opportunities is helping customers transfer existing data centers into fully automated, flexible data centers in which internal, or private, computing clouds can be built, thereby helping customers cut IT expenses by as much as 40 percent.

The second is to help EMC's service provider and telco partners to build public computing clouds using many of the same technologies EMC is focusing on private clouds, including offerings that will increase access to cloud computing for SMBs.

EMC is also working on bringing new applications to cloud computing, Tucci said.

"EMC will also run a set of applications as a service on top of our service providers' public clouds," he said. "Applications like PC backup as a service, storage as a service, archiving as a service, elements of content management and security as a service, desktop as a service. And the potential list goes on and on."

EMC also sees growth from a new generation of its core backup and recovery and archiving solutions, which Tucci called a $10 billion opportunity.

"It is extremely fragmented, with EMC being a market leader," he said. "The opportunity here stems from the continuing sea of data that customers need to better manage and protect. The attributes of automated tiered storage, combined with the best-of-breed data deduplication technologies, are the keys to success here."

So are partners, Tucci said.

"We have technology partners; distribution partners; service, system integration, and outsourcing partners; and service providers," he said. "In short, our partner ecosystem will be second to none."

Among the partnerships that present strong opportunities for EMC are its Virtual Computing Environment, or VCE, partnership with Cisco and VMware, as well as its relationship with Dell, EMC's biggest reseller.

Wall Street liked EMC's report. Near the end of the trading day on Tuesday, EMC's stock was up 5.5 percent to about $17.70 per share, close to the day's high of $17.79.

Analysts also high-fived EMC for its report.

Allan Krans, senior analyst at Technology Business Research, wrote that the recession for EMC had a relatively minor impact compared to the last recession, and that EMC is reaping the benefits of preparing for the worst by reacting quickly to the downturn by rationalizing its expense structure even before the impact hit.

"Even as revenue increased by double-digits during 4Q08, EMC announced plans to reduce headcount by 2,400 and decrease all areas of operational spending," Krans wrote. "EMC was able to preserve profitability during the recession and is now driving profit growth as revenue begins to recover."

Jayson Noland, an analyst at Robert W. Baird, wrote that EMC's good fourth-quarter results and strong 2010 guidance bode well for the company's future.

"As the leading networked storage vendor and a key provider of core data center technologies, EMC is well-positioned to benefit as fundamentals improve and IT spend recovers," Noland wrote.