EMC’s Results Around the Corner

Headquartered in Hopkinton, Massachusetts, EMC Corp. (EMC - Analyst Report) is set to release its third-quarter earnings before the market opens on Thursday. The company holds a leadership position in the storage hardware and software segment and is a leading provider of data storage systems. 

The company expects some sequential improvement in the quarter, with the strongest quarterly growth in the fourth. Consolidated revenue is expected to increase 2.0% to 3.0% sequentially or between $3.32 billion to $3.36 billion, excluding revenues from the acquisition of Data Domain (DDUP). Including the acquisition of Data Domain, consolidated EMC revenue is expected to increase by 4.0% to 5.0% sequentially. 

For the full year 2009, management expects consolidated revenues at $13.80 billion, including $200.0 million of revenues from Data Domain. Excluding one-time items, pro forma EPS is expected to be 82 cents. This compares to earnings of $1.04 on sales of $14.88 billion during 2008. 

Second quarter 2009 results were better than expected. The company benefited from strong customer demand, new product launches, technology integrations and product enhancements across its Information Infrastructure portfolio. Although results were down from the year-ago period, it increased sequentially due to relative stability in corporate IT spending. 

Revenues of $3.26 billion came in above the Street estimate of $3.20 billion, declining 11.5% year-over-year but increasing 3.4% from last quarter. Pro forma earnings were 18 cents, down 25.2% from 24 cents last year but up 12.5% from 16 cents in the last quarter. 

EMC continues to boast a very strong balance sheet, with net cash per share of $2.09 at the end of June 2009. Due to higher sales volume, cash from operations increased 13.9% from 2007 to $3.57 billion in 2008. Year-to-date, EMC has generated solid free cash flow of $1.1 billion, which is higher than the first half non-GAAP net income. 

We expect EMC to report strong results in the second half of the year as corporate IT spending and demand are showing signs of stabilization. However, we believe that competition in storage is heating up, resulting in weaker pricing. Also, higher restructuring costs may pressure margins. 

The company’s product line competes against NetApp Inc. (NTAP - Snapshot Report), Hewlett-Packard (HPQ - Analyst Report), CommVault Systems Inc. (CVLT - Snapshot Report) and Symantec Corp. (SYMC - Snapshot Report). We have a Neutral rating on EMC.

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