EMC Corporation (EMC)

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EMC (EMC)

Q4 2010 Earnings Call

January 25, 2011 8:30 am ET

Executives

David Goulden - Chief Financial Officer and Executive Vice President

Joseph Tucci - Chairman, Chief Executive Officer, President, Member of Mergers & Acquisitions Committee and Member of Finance Committee

Tony Takazawa - VP

Analysts

Louis Miscioscia - Collins Stewart LLC

Maynard Um - UBS Investment Bank

Richard Gardner - Citigroup Inc

Aaron Rakers - Stifel, Nicolaus & Co., Inc.

Amit Daryanani - RBC Capital Markets, LLC

Jayson Noland - Robert W. Baird & Co. Incorporated

Shebly Seyrafi - Capstone Investments

Kaushik Roy - Wedbush Securities Inc.

Daniel Ives - FBR Capital Markets & Co.

Ananda Baruah - Brean Murray, Carret & Co., LLC

Kathryn Huberty - Morgan Stanley

Rajesh Ghai - ThinkEquity LLC

Mark Moskowitz - JP Morgan Chase & Co

Ittai Kidron - Oppenheimer & Co. Inc.

Presentation

Operator

Welcome, everyone, and thank you for standing by. [Operator Instructions] I would now like to turn the conference call over to our first speaker, Mr. Tony Takazawa. Thank you. Sir, you may begin.

Tony Takazawa

Thank you. Good morning. Welcome to EMC's call to discuss our financial results for the fourth quarter of 2010. Today, we are joined by EMC Chairman and CEO, Joe Tucci; and David Goulden, EMC's Executive Vice President and CFO. David will provide a few comments about the results that we released this morning. He will highlight some of EMC's activities this quarter and discuss our outlook for 2011. Joe will then spend some time discussing his view of what is happening in the market, EMC's execution of the strategy and how EMC is positioned to help customers on a journey to the cloud. After their prepared remarks, we will then open up the lines to take your questions.

We would like to point out that we will be referring to non-GAAP numbers in today's presentation, unless otherwise indicated. The reconciliation of our non-GAAP comments to our GAAP results can be found in the disclosure today in our press release, supplemental schedules and the slides that accompany our presentation. All of these are available for download within the Investor Relations section of emc.com.

As always, we have provided financial tables in our news release and on our corporate website. These include a lot of financial details, so we do encourage you to take a look at them. The call this morning will contain forward-looking statements and information concerning factors that could cause actual results to differ can be found in EMC's filings with the U.S. Securities and Exchange Commission.

And lastly, I will note that an archive of today's presentation will be available following the call. With that, it's now my pleasure to introduce David Goulden. David?

David Goulden

Thanks, Tony. Good morning, everyone, and thank you for joining us today. I'm very pleased to report that EMC had another great quarter to finish off a year of excellent operational and financial results. Q4 revenue, non-GAAP net income, non-GAAP EPS, and free cash flow are all new quarterly records for EMC. We also achieved a record-breaking year in 2010, with revenue of $17 billion, an increase of 21%. Non-GAAP operating margin for the full year of 22%, up 460 basis points; non-GAAP earnings per share of $1.26, up 40% from 2009; and free cash flow of $3.4 billion, up 31% and 27% higher than non-GAAP net income.

2010 revenue, non-GAAP net income, non-GAAP EPS, and free cash flow are also new annual records for EMC as well. Clearly, our vision and strategy are on target. The market is primed and ready, and we have the right assets to help our customers on their journey to the cloud. As a result, in 2010, we executed on our triple play to simultaneously invest meaningfully in our business, take market share and improve profitability.

First, looking at the investments we made in our business. We stepped up investing in research and development by 16% to approximately $2 billion, including software development costs that were capitalized. We invested $3.2 billion on key acquisitions, targeted at high growth areas and invested substantially in our go-to-market capabilities, including our international sales infrastructure and expanding our channel network.

Secondly, the market share gains we achieved were impressive, with faster market growth in areas like virtualization, security and storage, with especially strong share gains in back-up and archiving and in the high-end. For the full year 2010, we grew 21%, almost twice what we estimate was the growth for our total available market.

Finally, even while investing in our business for growth and achieving sizable market share gains, we were still able to deliver a substantial leverage for our business in 2010. Products designed to deliver greater value, services driven more efficiently and faster growth in our higher-margin businesses all contributed to a 340 basis point gain in non-GAAP gross margin over last year.

The improvement in non-GAAP operating margin was even greater, up 460 basis points to 22% for the full year due to the operating expense efficiencies we also achieved. Let me point out that these are also very strong gains over 2008.

As we head into 2011, we're even better prepared to see the potential in front of us than we were in 2010 as we have expanded our market opportunity with the acquisitions of Greenplum and Isilon. We've extended our reach down market with the addition of a VNXe family of storage systems. And we've put an even greater distance between ourselves and our competitors across our storage portfolio with a newly refreshed and unified mid-tier storage family, new and enhanced products in our backup and archiving offering and valuable new software offerings for our flagship VMAX, to name just a few.

Read the rest of this transcript for free on seekingalpha.com