) reported better-than-expected fourth quarter 2012 results, with
earnings of 46 cents per share beating the Zacks Consensus
Estimate by 3 cents.
Revenues increased 8.2% year over year and 14.2% sequentially
to $6.03 billion in the reported quarter, well above the Zacks
Consensus Estimate of $5.98 billion. The revenue upside was
primarily attributed to strong services and product sales.
Product sales increased 5.3% year over year and 20.9%
sequentially to $3.73 billion. Services surged 13.2% from the
year-ago quarter and 4.9% from the previous quarter to $2.30
EMC's majority owned
) continued to impress with revenue growth of 22.0% on a
year-over-year basis to reach $1.29 billion in the reported
On a geographical basis, domestic revenues climbed 5.0% year
over year to $3.1 billion and contributed 52.0% to the quarter
revenues. Revenues from international operations increased 12.0%
year over year to $2.9 billion and accounted for the remaining
48.0% of revenues.
Gross profit (including stock-based compensation but excluding
one-time items) increased 11.1% year over year and 18.1%
sequentially to $3.96 billion. Gross margin expanded 180 basis
points (bps) from the year-ago quarter and 220 bps sequentially
to 65.7%, primarily on the back of strong revenue growth.
Research & development expenses were up 18.2% year over
year and 1.5% sequentially to $663.0 million in the fourth
quarter. Selling, general & administrative expense increased
7.5% year over year and 12.9% sequentially to $1.93 billion in
the reported quarter.
Operating profit (including stock-based compensation but
excluding one-time items) increased 12.4% year over year and
36.6% sequentially to $1.41 billion. Operating margin expanded 90
bps year over year and 340 bps from the previous quarter to 23.4%
due to higher gross margin base.
Net income (including stock-based compensation but excluding
one-time items) increased 13.2% year over year and 44.1%
sequentially to $1.03 billion in the fourth quarter. Earnings per
share (EPS) increased 10.0% year over year and 42.0% sequentially
to 46 cents.
As of Dec 31, 2012, cash and cash equivalents including
short-term investments were $6.17 billion compared with $5.45
billion at the end of Sep 30, 2012. EMC generated $1.90 billion
in cash flow from operations in the fourth quarter compared with
$1.44 billion in the prior quarter. Free cash flow jumped to
$1.50 billion in the reported quarter from $1.14 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
net income is expected to be approximately $4.1 billion for the
full year. EMC expects EPS of $1.85 for 2013.
EMC also expects to repurchase shares worth $1.0 billion in
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
Further, EMC's leading position in the emerging economies of
the Asia-Pacific and Africa will boost its profitability as
higher revenues from these markets will offset sluggish growth in
the Americas and Western Europe going forward.
However, increasing competition from the likes of
International Business Machines Corp.
Hewlett Packard Co.
) and a sluggish IT spending outlook for the next two years will
keep the stock range bound, in our view.
Currently, EMC has a Zacks Rank #4 (Sell).
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