EMC reaffirms full-year forecast after first-quarter miss

Reuters News
Posted: Apr 24, 2013 7:14 AM

By Nicola Leske and Sayantani Ghosh

(Reuters) - EMC Corp reported slightly weaker-than-expected quarterly results as customers remained cautious about tech spending but the data storage equipment maker reiterated its full-year forecast, sending its shares up nearly 2 percent.

Analysts said investors would be relieved by the outlook, after weak results from IBM Corp and disappointing forecast by Intel Corp and Juniper Networks Inc.

EMC said it expected overall IT spending to increase about 3 percent in 2013 even though its customers were cautious in the face of continuing political and economic uncertainty.

"Most orders are subject to greater scrutiny and many enterprises are now requiring a higher level of executive sign-off before they give final approval," Chief Executive Joe Tucci said on a conference call with analysts.

Federal spending on everything from defense to schools has been slashed due to automatic spending cuts, or sequestration, that came into effect in March after Congress failed to find an alternative plan to reduce spending.

A range of U.S. companies are warning investors that sequestration is starting to bite.

"There were fears of a disaster at EMC given what we have seen around tech with Oracle and IBM. So overall it was better than feared," said FBR Capital markets analyst Daniel Ives.

"Would you frame this quarter in your living room? No, but most investors would take this quarter any time of the week," Ives said.

The company's publicly traded cloud computing unit, VMware Inc, forecast second-quarter revenue below analysts' estimates on Tuesday.


EMC said it would buy back $1 billion worth stock this year.

"While IBM rewarded shareholders well in the past five years, it is our view EMC is poised to do the same for investors in the coming years with sustainable robust double-digit earnings growth," ISI Group analyst Brian Marshall said.

In a research note titled "Investors need to start respecting the family ... or else," Marshall said investor sentiment on EMC has been very negative lately, hurt partly by fears that IT budgets will continue to be weak, but EMC had performed well in a tough climate.

EMC and VMware announced a joint venture, Pivotal Inc, with a $1 billion revenue target in March to cash in on an expected jump in demand for data analytics software as telecom service providers look for better tools to analyze the mass of data from different technology platforms.

Pivotal said on Wednesday GE planned to make a strategic investment of about $105 million, representing a 10 percent equity stake in the company.

EMC's adjusted earnings rose 5 percent to 39 cents per share in the first quarter but missed analysts' estimates by 1 cent.

Revenue increased 6 percent to $5.39 billion, below expectations of $5.42 billion.

EMC shares rose to $22.76 in morning trading on the New York Stock Exchange on Wednesday.

(Editing by Maureen Bavdek and Don Sebastian)