EMC's Q1 profits down, but not out
More cost-cutting likely
EMC has released figures showing it was profitable in its first 2009 quarter, although profits were 23 per cent lower. Already in cost-saving mode, the company is going to save an additional $100m through further cost-reduction actions.
EMC revenues were $3.15bn in Q1 09, just 9.2 per cent down on Q1 08's $3.5bn. Its netcome though, was 23 per cent down from the year-ago quarter's $251.6m ($0.12/share), coming in at $194.1m ($0.10/share).
Taking out VMware results, EMC revenues were $2.68bn, down 11.6 per cent year-on-year and 24 per cent sequentially. Within that, Content Management and Archiving revenue was 6 per cent lower y-on-y and 16 per cent sequentially, at $174 million. RSA security revenue was up 6 per cent y-on-y but 8 per cent down sequentially, at $143m. The main Information Storage revenues of $2.363bn were 13 per cent down y-on-y and 25 per cent sequentially.
Chairman, president and CEO, Joe Tucci was pleased and cautiously optimistic about the future, saying: "We believe the global IT spending environment has reached or is very near the bottom. We expect IT spending to improve in the second half of 2009 as customers will have better budget visibility, be further through their own restructuring programs, and broader stimulus packages should be underway." EMC is not providing any guidance for the next quarter, though.
Its best estimate is that 2009 global IT spending will decline as a percentage in the very-high-single-digit to very-low-double-digit range, compared with 2008. It also expects second-quarter 2009 global IT spending will probably be flat compared with the first quarter of 2009, and the second half of 2009 will be stronger than the first half of the year. This implies a similar revenue number in Q2 to Q1's $3.15bn. Profitability might be higher if cost reductions work well.
CFO David Goulden talked of Q1's "decent profitability" and said: "We are taking additional near-term cost reduction actions that will save EMC an additional $100m in 2009." EMC has already announced a restructuring initiative to cut costs by $350m this year and $500m in 2010.
There is no detail on the particular actions EMC has in mind but an internal EMC source has tweeted that EMC is cutting everyone's pay by 5 per cent until the end of the year and staff are also getting an extra five days leave. ®
EMC endemic structural problems
are largely twofold, both of which come down to the EMC staff and sales strategy.
Firstly, there are a lot of very highly paid sales people and tenured employees who believe that they fat salaries are justified, when really they skill sets are insufficient to justify their position. EMC's costs of sales are out of line with the market pricing of their products resulting in a margin (aka bottom line profitability) squeeze.
Secondly, though Joe Tucci has tried to convert EMC to a software company.
Rather than leading with software and dragging the hardware, the aforementioned tenured sales teams continue to lead with hardware and bundle the software to secure the sale, reducing the value ot both and profitability across the board.
This has forced EMC sales to add multiple layers of overlays who are specializing in various software attributes, so that they can go out and sell the value of the software.
All this does is double the cost of sales on those software lines.
As with all large companies, EMC has its issues with product quality, but there's a lot right with it. The Clariion is solid, the DMX range is reliable, albeit priced in Rolls Royce territory, which is a shame because you can buy faster (eg Panasas, 3PAR), more scalable (eg HDS) gear for less and many of these customers today purchasing DMX level would be just as satisfied with the Clariion lines, if their sales reps were a little more honest about what is really required to get the job done.
EMC is encroaching on NetApp with their NAS and iSCSI offerings, although the NS range is a little more clumsy to install and operate. The Vmware issues will persist as standards emerge in the hypervisor space and Microsoft shows muscle with Hyper-V. Vmware is really good software and will continue to be the best in class, but good enough (Hyper-V, Xen + the half a dozen others) will be good enough for many customers.
EMC's software business is in fair shape and - credit where credit's due - they've spun quite a bit of silk from the sow's ear that was Networker. The Avamar star seems to burn bright but I'm not sure where they are going with the OEM stuff from Quantum, which just doesn't seem to stack up well against Data Domain's offerings.
The business that EMC is doing their Dell channel has dropped considerably from a couple of years ago, which is a shame because this was consistently a profitable business channel for EMC. I'm surprised that the EMC execs have let this perpetuate as far as it has, despite the concerns about Dell's Equallogic acquisition. Rumor on the street indicates just as much friction as ever between the EMC and Dell sales teams.
EMC's non-Dell channel business looks okay, but again the tier-2 storage companies are growing and remain a threat, due to the resellers using these lines as differentiators and because they pay larger margins. Who would want to be an EMC reseller when you have EMC direct, 4 other channel partners and Dell to compete with every time? I believe that EMC will continue to walk this path well, however.
Fire, because I think that a lot of people at EMC are going to get burned once Tucci lights a fire under their asses.
Happy employees we are not
(Sent to me anonymously - Chris)
Cost cutting likely???
We have been asked to take a 5% pay cut until the end of December.
Compulsory where they can enforce it, voluntary where they can't.
Still 1400 jobs to be let go worldwide as a result of the "restructure" that took place at the beginning of the year.
Happy employees we are not.
So, what you're saying . . .
. . . is that the model of selling over-priced, non-innovative hardware and poorly-debugged software is not sustainable in a downturn? And possibly that corporate purchasers, even conditioned as they are to buy from giant three-initial companies, prefer to buy from smaller, cheaper, more agile competitors when their budgets get tighter? Let's hope that continues to be true so that those of us locked into buying EMC will see some fruits of other companies' innovation.