Tucci: EMC Board 'Actively Engaged' In CEO Succession Plan

EMC's board has begun the search for its next CEO as the company undertakes an $850 million cost-cutting program in the wake of yet another quarter of declining profits, CEO Joe Tucci said Wednesday during a call with analysts to discuss EMC's latest financial results.

The company again lowered its guidance for full-year earnings.

At one time, Tucci, 68, said he'd retire when his contract expired last February. Instead, he's been working without a contract since then, saying he'd stay until EMC's board decided to replace him.

[Related: EMC's Tucci: No Excuses For Q1 Storage Sales Shortfall]

Tucci said the board had begun the "smart navigation" of the CEO succession process, but he wouldn't comment on timing.

"I love this company, and I'm going to give the board time so the navigation of the succession process works," Tucci said. "I don't want to put a deadline on the board, but they are actively engaged."

The search for Tucci's replacement is only one part of a wider upheaval at EMC, which reported another quarterly profit decline, missing analysts' estimates for its second quarter, ended June 30.

EMC's profit fell to $487 million, or about 25 cents a share, from $589 million, or 28 cents a share, a year prior, marking the second quarter in a row to show declining year-over-year profits. Zacks Equity Research's consensus estimate was for 31 cents a share for the second quarter. EMC shares are down about 16 percent so far this year.

When adjusted to exclude stock-based compensation and other items, the company said earnings were 43 cents a share, flat with year-ago results.

Revenue for the quarter was $6 billion, up 3 percent from $5.88 billion a year ago.

The company has been under pressure from activist investors, particularly Elliott Management, to boost shareholder value by spinning off its approximately 80 percent stake in VMware. That's an option the company has so far resisted as it remains dedicated to its so-called "federation" strategy.

The battle with Elliott has been on hold since last November, when two of Elliott's representatives were elected to the EMC board.

Executives Wednesday signaled they'd rather cut their way to better shareholder value than break up the federation, which they consider the key to future success and earnings strength as more and more large enterprise customers demand solutions that take advantage of the full federation stack from storage to hybrid cloud.

Tucci said the aggressive, $850 million cost-cutting program would better align EMC and its federation of companies -- EMC Information Infrastructure, VMware, RSA, VCE and Pivotal -- for the industrywide transformation away from traditional data storage hardware to digital solutions enterprise customers are demanding.

The program will have the greatest impact on EMC Information Infrastructure, that unit's chief, David Goulden, said.

The plan will include layoffs, a "business transformation" agenda, the redesign of business processes, organizational realignment and portfolio streamlining, said EMC's CFO Zane Rowe.

"Tough decisions will have to be made," Rowe said.

The effort also may include getting rid of products and exiting businesses that aren't showing strong growth, Tucci said.

"We are looking at assets that aren't strategic," Tucci said. He said EMC's core business is in customers' digital transformations, security analytics and hybrid cloud. "We're going to invest more there," he said. "Things that are not strategic and helping with that, we'll look at how we can monetize."

Rowe added, "We're looking at all parts of the portfolio strategically, how it works together. There's a lot of opportunity in streamlining, as well as investing."

Revenue at Pivotal jumped 18 percent in the quarter, while VMware sales increased 4 percent to $1.6 billion and its profit increased 3 percent.

The company lowered its full-year guidance to $25.2 billion in sales and $1.87 per share in earnings. Its last estimate, given when the company released first-quarter earnings in April, was for $1.91 a share on $25.7 billion in sales, and was itself a reduction from prior expectations.

PUBLISHED JULY 22, 2015