EMC Corp. (
reported third quarter earnings of 32 cents per share that missed
the Zacks Consensus Estimate by a nickel. Earnings (including
stock-based compensation but excluding other non-recurring items)
remained almost flat on a year over year basis but decreased 8.7%
sequentially in the quarter.
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Revenues increased 4.9% year over year but decreased 1.3%
sequentially to $5.53 billion, well short of the Zacks Consensus
Estimate of $5.79 billion. Product sales climbed 2.6% year over
year but declined 2.9% sequentially to $3.17 billion. Services
increased 8.2% from the year-ago quarter and 0.8% from the
previous quarter to $2.37 billion.
Information Infrastructure segment revenues (75.4% of revenues)
increased 0.3% year over year but decreased 3.1% sequentially to
$4.17 billion. The year-over-year growth was primarily driven by
strong performance from RSA (up 11.0% year over year) and
Information Storage (up 1.3% year over year), which fully offset
a weak result from Information Intelligence (down 5.7% year over
On a sequential basis, RSA increased 10.5%, while Information
Storage and Information Intelligence declined 3.9% and 2.0%,
EMC's majority owned
VMware Inc. (
continued to impress with revenue growth of 16.7% on a
year-over-year basis to reach $1.29 billion. Sequentially, VMware
revenues increased 3.8% in the reported quarter.
Pivotal formed in the second quarter reported revenues of $80.0
million that surged 21.2% from the year-ago quarter and 14.3%
from the previous quarter.
On a geographical basis, domestic revenues climbed 2.0% year over
year to $3.0 billion and contributed 53.0% to revenues. Revenues
from international operations increased 8.0% year over year to
$2.6 billion and accounted for the remaining 47.0% of revenues.
Gross margin contracted 20 basis points (bps) from the year-ago
quarter and 50 bps from the previous quarter due to unfavorable
Research & development expenses as percentage of revenues
remained flat both on a year-over-year and sequential basis.
Selling, general & administrative expense as a percentage of
revenues increased 30 bps from the year-ago quarter and 90 bps on
a sequential basis.
Operating margin contracted 60 bps on a year-over-year basis and
130 bps from the previous quarter to 19.0% due to lower revenue
growth and gross margin base. Net income as a percentage of
revenues was 12.6% compared with 13.6% in the year-ago quarter
and 13.7% in the previous quarter.
Earnings (excluding stock-based compensation and other
non-recurring items) decreased 3.6% from the year-ago quarter and
35.7% from the previous quarter to 27 cents.
Balance Sheet & Cash Flow
As of Sep 30, 2013, cash and cash equivalents including
short-term investments were $10.60 billion compared with $11.15
billion at the end of Jun 30, 2013. EMC generated $1.79 billion
in cash flow from operations in the third quarter compared with
$1.23 billion in the prior quarter.
EMC forecasts revenues of $23.25 billion (down from earlier
outlook of $23.5 billion) for 2013. Non-GAAP operating margin is
expected to grow to 25.0% (down from earlier outlook of 25.5%) in
2013. Non-GAAP operating expense is expected to be $350.0 million
Non-GAAP net income is expected to be approximately $3.9 billion
(down from earlier projection of $4.0 billion) for the full year.
EMC expects earnings of $1.80 (down from the earlier outlook of
$1.85 per share) for 2013.
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
International Business Machines Corp. (
Hewlett Packard (
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).