) reported second quarter earnings of 35 cents per share that
beat the Zacks Consensus Estimate by a penny. Earnings (including
stock-based compensation but excluding other non-recurring items)
increased 9.3% year over year and 11.6% sequentially in the
Revenues increased 5.7% year over year and 4.2% sequentially to
$5.61 billion, slightly short of the Zacks Consensus Estimate of
$5.63 billion. Product sales climbed 2.5% year over year and 4.7%
sequentially to $3.26 billion. Services surged 10.5% from the
year-ago quarter and 3.6% from the previous quarter to $2.36
Information Infrastructure segment revenues (76.7% of revenues)
increased 3.5% year over year and 3.7% sequentially to $4.31
billion. The year-over-year growth was primarily driven by strong
performance from RSA (up 3.6% year over year) and Information
Storage (up 3.7% year over year), which fully offset a weak
result from Information Intelligence (down 0.7% year over year).
On a sequential basis, Information Storage increased 4.3% while
RSA and Information Intelligence declined 2.1% and 1.9%,
EMC's majority owned
) continued to impress with revenue growth of 13.8% on a
year-over-year basis to reach $1.24 billion. Sequentially, VMware
revenues increased 6.2% in the reported quarter.
During the quarter, EMC and VMware formed a new company called
Pivotal (Apr 1, 2013), which combines Greenplum, Cloud Foundry,
Spring, Cetas, Pivotal Labs, GemFire and other products from the
VMware vFabrix Suite.
) also announced to make a strategic investment of approximately
$105.0 million in Pivotal, representing a 10% equity stake.
Pivotal revenues jumped 11.1% year over year and 1.4%
sequentially to $70.0 million in the quarter.
On a geographical basis, domestic revenues climbed 4.0% year over
year to $3.0 billion and contributed 53.0% to revenues. Revenues
from international operations increased 8.0% year over year to
$2.7 billion and accounted for the remaining 47.0% of revenues.
Gross margin remained flat year over year due to lower product
sales margin. However, on a sequential basis, gross margin
expanded 130 bps due to favorable product mix.
Research & development expenses as percentage of revenues
inched up 10 bps from the year-ago quarter but declined 10 bps
sequentially. Selling, general & administrative expense as a
percentage of revenues declined 50 bps from the year-ago quarter
but remained on a sequential basis.
Operating margin expanded 40 bps on a year-over-year basis and
140 bps from the previous quarter to 20.3% due to higher revenue
growth and gross margin base. Net income as a percentage of
revenues was 13.7% compared with 13.4% in the year-ago quarter
and 12.9% in the previous quarter.
Earnings (excluding stock-based compensation and other
non-recurring items) increased 7.7% from the year-ago quarter and
the previous quarter to 42 cents.
Balance Sheet & Cash Flow
As of Jun 30, 2013, cash and cash equivalents including
short-term investments were $11.15 billion compared with $6.53
billion at the end of Mar 31, 2013. EMC generated $1.23 billion
in cash flow from operations in the second quarter compared with
$1.71 billion in the prior quarter. Free cash flow declined to
$843.4 million in the reported quarter from $1.44 billion in the
EMC forecasts revenues of $23.5 billion for 2013. Non-GAAP
operating margin is expected to grow to 25.5% for 2013. Non-GAAP
operating expense is expected to be $350.0 million for 2013.
Non-GAAP net income is expected to be approximately $4.0 billion
for the full year. EMC expects earnings of $1.85 per share for
Cash flow from operating activities is expected to be $6.8
billion, while free cash flow is expected to be $5.5 billion for
2013. EMC also expects to repurchase shares worth $3.5 billion in
2013 and in the first half of 2014.
We believe that EMC is well positioned to benefit from
incremental data center hardware spending going forward. We
believe that EMC's vast product portfolio, which has products
suitable for any kind of budget, will boost its market share
going forward. Additionally, aggressive share repurchase will
drive earnings going forward.
However, increasing competition from the likes of
) and Hewlett Packard Co. and a sluggish IT spending outlook for
the next two years will continue to keep margins under pressure
in the near term.
Currently, EMC has a Zacks Rank #2 (Buy).
EMC CORP -MASS (EMC): Free Stock Analysis
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VMWARE INC-A (VMW): Free Stock Analysis
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