3rd UPDATE: EMC's 2Q Profit Down 43%, Though '09 View Upbeat

EMC Corp.'s (EMC) second-quarter earnings slid 43% as information-technology customers continued to pare spending, though the company's outlook - its first amid the downturn - offered a sign that market conditions may be stabilizing.

In its forecast for 2009, EMC projected results above analysts' expectations, sending shares up 5.4% to $15.19 recently. The stock is up 45% since the beginning of the year.

Second-quarter results also topped estimates.

"This marks another quarter of solid execution," said EMC President and Chief Executive Joe Tucci in a prepared statement. "When IT markets resume to more normal spending rates, we expect EMC will return to generating double-digit revenue growth."

EMC has declined to give a formal outlook since the start of the year due to the unclear economic picture. Expectations for tech spending were murky at best as companies slashed budgets in the face of the global slowdown.

But in offering some guidance on the company's prospects, EMC signals that the tech market is at least returning to more predictable conditions.

"We now have better visibility and more confidence in the second half of 2009," said EMC Chief Financial Officer David Goulden during a conference call to discuss results.

IT budgets for EMC's customers "firmed up quite a bit," Tucci said, giving EMC better insight into the rest of the year, though Goulden added in an interview that budgets aren't necessarily growing, they are simply becoming "more predictable."

"Our sales teams were more confident in calling a number," he said.

Some level of full year guidance is likely viewed very positively by investors, said Jefferies & Co. analyst Bill Choi.

For 2009, EMC sees earnings of 82 cents and revenue of $13.8 billion, both including its pending $2.2 billion acquisition of Data Domain Inc. (DDUP) - expected to close later Thursday. Analysts surveyed by Thomson Reuters projected 78 cents and $13.49 billion, respectively.

Also, third-quarter revenue is seen rising 2% to 3% from the second quarter's $3.26 billion. Analysts anticipated $3.38 billion.

For its part, Hopkinton, Mass.-based EMC pushed aggressive cost-cutting since the start of the year, announcing in January it would eliminate 2,400 jobs to save $350 million. It said in April it would reduce costs by another $100 million. It has asked employees to take a 5% pay cut but didn't foresee additional layoffs.

EMC's Goulden said the company still has no plans for more job cuts.

In the second quarter, EMC's earnings fell to $205.2 million, or 10 cents a share, from $360.1 million, or 17 cents a share, a year earlier. Excluding restructuring and other costs, profit fell to 18 cents from 24 cents.

Revenue dropped 11% to $3.26 billion, or 8% excluding currency changes. Revenue from VMWare Inc. (VMW), in which EMC holds a majority stake, contributed $455 million to the top line.

Analysts polled by Thomson Reuters expected per-share earnings of 16 cents on revenue of $3.2 billion.

Data Domain, which makes a technology used to reduce duplicated files in data centers, should add roughly $200 million in revenue in the third and fourth quarters of 2009 as it continues to post strong growth. In its latest quarter, Data Domain grew revenue by 40% from the year-earlier period.

EMC topped NetApp Inc. (NTA) in a bidding war for Data Domain as both companies vied to take a leadership role in what is known as de-duplication, an important growth niche in the data archiving market.

Data Domain will form the basis of EMC's back-up storage business. Goulden said the integration process is only beginning and more specifics on the timeline for the integration and the shape of the new business would be available during the company's next earnings report.

He added, though, that sales teams are being cross-compensated for sales of EMC and Data Domain products, as a short-term move to keep the integration on track.

Meanwhile, Tucci said that a trend developing among EMC customers is a shift towards fewer data-center suppliers, suggesting that customers are looking at their suppliers more as partners.

"We believe this trend will benefit EMC," said Tucci.

-By Jerry A. DiColo, Dow Jones Newswires; 212-416-2155; [e-mail]

(Melissa Korn and Kevin Kingsbury contributed to this report.)