EMC Posts Profit Decline, Further Cuts Year View -- Update

By Lisa Beilfuss 

EMC Corp. said second-quarter profit fell 17% and the data-storage company further reduced its full-year outlook as spending slowed in the company's traditional storage business.

Shares in EMC, down about 16% this year, slipped about 1% in premarket trading.

The Hopkinton, Mass., company now expects to report $1.87 in per-share profit this year, down from its last estimate of $1.91 a share, on $25.2 billion in sales, lower than its earlier estimate of $25.7 billion. Analysts have been expecting $1.90 a share on $25.6 billion in revenue, according to FactSet.

Chief Executive Joe Tucci, whose employment contract expired earlier this year, said that "while pleased" with growth of newer products, "we also saw customers become more conservative around refreshing their traditional infrastructures as they plan their IT transformations." Mr. Tucci also noted ongoing geopolitical factors in China and Russia.

EMC is best known for large systems that use disk drives to store corporate data, but it has branched out into many other areas, largely through acquisitions.

The company benefited in the second quarter from growth at two software companies it controls-- VMware Inc. and Pivotal Software Inc.--key components of what the company calls its federation strategy. At VMware, which reported second-quarter results Tuesday, profit grew 3% as sales rose 4% to $1.6 billion, though results were impacted by costs stemming from a legal settlement. Pivotal's revenue, meanwhile, jumped 18% in its latest quarter.

EMC has faced pressure to change its structure from investors that include Elliott Management Corp. The activist investor purchased a large stake in EMC last year and has urged the company to spin off its roughly 80% stake in VMware to help boost EMC's share price. That pressure eased somewhat in January, after Elliott agreed to a standstill agreement until September.

Overall, EMC reported a profit of $487 million, or 25 cents a share, down from $589 million, or 28 cents a share, a year earlier. On an adjusted basis that excludes stock-based compensation and other items, EMC said it posted earnings of 43 cents a share, flat from a year earlier.

Revenue grew 2% to $6 billion. VMware in June paid $75.5 million to settle a case with the Justice Department, a one-time expense that negatively affected EMC's second-quarter revenue.

Analysts anticipated 41 cents in per-share profit on $6.1 billion in revenue.

Sales in the company's information infrastructure business rose 1%, driven by strength in new products including a line called XtremIO that stores data on flash-memory chips rather than disk drives. Revenue for that segment more than tripled in the latest quarter.

Write to Lisa Beilfuss at [e-mail]

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