EMC: Refocus Of Business Into Three Parts Gives Company A Strong 2Q

EMC on Wednesday reported strong second-quarter 2013 revenue and earnings growth and said an expected strong second half of the year will help the company meet its full-year expectations.

The storage heavyweight also explained how it is grouping its various businesses into three separate organization as a way to make it easier to manage those businesses while keeping the entire company focused on its overall mission. EMC also said that indirect channels are helping drive new business in more emerging parts of the market.

EMC reported revenue for its second quarter, which ended June 30, of $5.6 billion, up 6 percent compared to the second-quarter 2012 revenue of $5.3 billion.

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The company also reported second-quarter GAAP income of $701 million, or 32 cents per share, up 8 percent from the $650 million reported last year. Second-quarter non-GAAP income was $907 million, up 8 percent over last year.

North American revenue grew 4 percent over last year, the slowest growth of any of EMC's geographical markets.

Joe Tucci, EMC chairman and CEO, said during the call that EMC is still seeing global uncertainty and tightening IT spending, with customers more and more likely to carefully scrutinize purchases.

EMC was able to help customers during the order by having inventory in place to meet the large customer demand late in the quarter caused by that scrutiny, but that was a less efficient way to do business than normal.

"That said ... we performed very well, especially when compared to the organic growth profile of our peers," he said.

EMC President and COO David Goulden talked at length about how EMC has divided its business into three parts, including EMC Information Infrastructure, VMware and Pivotal to help provide a more simplified look at how the company is doing and to more easily show how the different parts are working together.

"Overall, our solid top- and bottom-line performance in Q2 continue to demonstrate the soundness of our strategy, the importance of our federated business model and the focus and dedication of the EMC team globally," Goulden said.

By dividing the company's strategy and execution focus between the three, EMC is better able to focus each on its respective missions, Goulden said.

"Very importantly, this approach offers our customers horizontal solutions and more choice than they would get from others," Goulden said. "It's a unique model that leaves each to build its own products, market capabilities, and ecosystems necessary to win. And because the three share the same ultimate goal for customers--leveraging cloud, big data, and IT to maximize control, efficiency, and choice--their missions are clearly aligned."

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EMC Information Infrastructure revenue for the second quarter grew 4 percent over last year to reach $4.3 billion, EMC's Goulden said. This included $1.2 billion in high-end storage sales, up 5 percent; $1.5 billion in unified and backup/recovery storage sales, up 3 percent; $300 million in emerging storage sales, up 39 percent; $930 million in other storage sales including professional services, down 4 percent; $230 million in RSA security sales, up 3 percent; and $150 million in IIG sales, flat with last year.

VMware, which on Tuesday separately reported its financials, had revenue of $1.2 billion, up 14 percent over last year.

Pivotal, a joint venture between EMC and VMware for developing cloud and big data technology, had second-quarter revenue of $70 million, up 11 percent over last year.

Indirect channels helped drive a lot of EMC's business, particularly in parts of the markets seeing high growth, Goulden said.

Demand for Vblock solutions from VCE, the joint venture between EMC, Cisco and VMware that develops pre-configured and pre-integrated converged infrastructure solutions, soared 50 percent during the second quarter, with over half the orders coming from repeat customers, Goulden said.

"We're seeing initial Vblock purchases by new customers growing in size and number of systems as converged infrastructure becomes a more acceptable paradigm for customers," he said.

Sales of solutions based on EMC's VSPEX reference architecture for converged infrastructure is also booming, Goulden said.

The company has sold over 3,600 VSPEX-based solutions since they were introduced in April of 2012, he said.

"In other words, in less than half the time, we have more systems installed than another less-flexible reference architecture that's been on the market for several years. ... With over one-third of the VSPEX systems sold in Q2 alone, this is clearly gaining momentum," he said.

The "less-flexible reference architecture" likely refers to the combined NetApp-Cisco FlexPod solution.

Both the Vblock and VSPEX solutions are strong channel plays.

EMC's cloud service provider program expanded quickly in the second quarter, with several new partners joining the program and dozens more still being approved, Goulden said. Revenue from cloud service providers grew over 40 percent in the second quarter over last year, he said.

Looking forward, the rollout of several new product generations in the second, third and fourth quarters of 2013 gives EMC the confidence to reaffirm the company's expectations for the entire year.

For all of 2013, EMC expects revenue to increase 8 percent to $23.5 billion, non-GAAP earnings per share to increase 9 percent to $1.85 per share, and free cash flow to increase 10 percent to $5.5 billion, all compared to full year 2012, Goulden said.

PUBLISHED JULY 24, 2013