EMC Corporation (EMC)

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Call Start 8:30

Call End: 9:34

EMC (EMC)

Q4 2012 Earnings Conference Call

January 29, 2013, 8:30 am ET

Executives

Tony Takazawa – VP, Global Investor Relations

David Goulden – President, COO

Joe Tucci – Chairman, CEO

Analysts

Keith Bachman - Bank of Montreal

Amit Daryanani – RBC Capital Markets

Aaron Rakers – Stifel Nicolaus

Shelby Seyrafi - FBN Securities

Kulbinder Garcha - Credit Suisse

Andrew Nowinski - Piper Jaffray

Ittai Kidron – Oppenheimer

Brian Alexander – Raymond James

Steve Milunovich – UBS

Abhey Lamba – Mizuho Securities

Presentation

Operator

Good morning and welcome to the EMC fourth quarter 2012 earnings conference call. All parties are in a listen-only mode until the question-and-answer portion of the call. As a reminder, this conference is being recorded. If you have any objections, you may disconnect at this time.

I would now like to introduce your host, Mr. Tony Takazawa, Vice President, Global Investor Relations of EMC.

Tony Takazawa

Thank you. Good morning. Welcome to EMC’s call to discuss our financial results for the fourth quarter and full-year 2012. Today we are joined by EMC Chairman and CEO, Joe Tucci, and David Goulden, EMC President and COO.

To kick things off, David will comment on our results and how these tie with the execution of our strategy and business operations. He will also discuss our outlook for the year 2013.

Joe will then spend some time discussing his view of what is happening in the economy and IT, EMC’s vision and strategy and how EMC is helping customers navigate the massive transformation happening in IT regarding cloud, big data and trusted IT.

After the prepared remarks, we will then open up the lines to take your questions. Today, we are providing you with our projected financial model for 2013. This model lays out all of the key assumptions and discrete financial expectations that are the foundation of our outlook this year. We hope that you find this model helpful in understanding our assumptions in context and in ensuring that these expectations are correctly incorporated into your models.

This model is available as background in today’s slides and available for download in the investor relations section of emc.com.

Please note 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 in today’s press release, supplemental schedules and the slides that accompany our presentation.

As always, 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 US Securities and Exchange Commission.

With that, it is now my pleasure to introduce David Goulden. David?

David Goulden

Thanks, Tony. Good morning, everyone, and thank you for joining us today. This morning we reported accelerated growth in Q4 with revenue up a solid 8% and non-GAAP EPS up 10% from last year’s Q4.

Our differentiated strategy and unique value proposition enabled us to deliver very good results in the quarter and achieved record results for full-year with revenue up 9%, to $21.7 billion, non-GAAP earnings per share up 13% to $1.70 and free cash flow up 14% to $5 billion.

In addition, in 2012, we delivered once again on our triple play, gaining market share, investing in the business and delivering leverage. I want to extend my thanks and congratulations to the many thousands of EMC and VMware people around the world who produced these strong results.

Our strategy was our strength throughout a challenging 2012. Our three strategic pillars of cloud, big data and trust resonate strongly with our customers and remain a top priority for IT departments.

EMC’s broad, best of breed portfolio gives us rich, differentiated basic capabilities to draw from as we work with our customers to transform both their IT departments and the businesses that IT supports.

And customers are responding. Compared with IT spending growth of approximately 2%, we are pleased to achieve revenue growth of 9% in 2012.

The challenges of complex and expensive IT infrastructures, data growth and security are at the core of the architectural shifts to cloud, big data and trusted IT. Our approach to cloud computing offers IT departments great efficiency control and choice. Once implemented, IT infrastructure can be managed in a more agile way, allowing IT to be more responsive to business needs.

Big data is triggering new approaches for deriving business insights and new opportunities to expand revenue. And as security concerns create challenges for IT on every side, the ability for customers to have and offer trusted IT is a valuable advantage.

Underpinning all of these macro IT trends is information growth. For many years, information storage and management have been near the top of customer priorities and this continues to be true.

The continued explosion of information is an obvious reason storage takes precedence. An equally important factor is that information growth always exceeds IT budget growth so that customers constantly need help in influencing more efficient and cost-effective approaches to managing information and this is where EMC has really been able to make our mark.

From our early days, EMC has been at the forefront of helping customers better handle the ongoing conflict between information growth and IT budgets. Earlier examples of these efforts include new storage approaches, with the introduction of standalone shared arrays, protection technologies like RAID5, or architectures like fiber channel SAN.

More recently, EMC innovations and solutions have included capabilities such as scale-out architectures, virtual provisioning, automated tiering, Flash storage, compression, and data deduplication. It is absolutely essential that we in the industry provide these technologies to help customers more efficiently and cost-effectively manage the growth of information. Otherwise, customers will quickly be overwhelmed.

Much of EMC’s long term success in this market is due to our ability to innovate and adapt with new technologies and approaches. In 2012, as the economy experienced a slowdown, the storage industry did as well. Tighter budgets prompted the increased use of storage efficiency technologies, and also caused many customers to keep their storage systems in service longer than they normally would.

We’ve previously experienced each of these effects in varying degrees, and in 2012 they were both quite meaningful. But network storage still grew faster than IT spending in 2012, and we’re confident it will again in 2013.

In spite of these headwinds, we were able to grow our storage business 6% in the quarter. Within this number, our network storage product revenue growth accelerated from Q3, and was also up 6% year on year, with growth pretty balanced between the high end and the mid-tier.

Our continued investment in new storage technologies has positioned us at the forefront of many of the trends toward the user solutions like scale-out NAS and all-Flash storage. And while these currently represent a relatively small portion of our storage business, they’re growing much more quickly and will become increasingly meaningful.

Perhaps even more important is the fact that these new technologies and products are integral elements within our broad and the best-of-breed storage portfolio, particularly as the industry continues to transition to cloud.

A good example of this is First National Technology Services, who provide advanced hosted and remote managed IT services to the financial industry. To stay competitive for customers with very demanding requirements, FNTS has to transition to a cloud infrastructure. By implementing VMAX with Flash and FAST, VNX for general purpose applications, VPLEX to eliminate downtime, and vSphere, FNTS was able to improve performance by a factor of three, improve disaster recovery, and completely eliminate migration-related downtime.

FNTS deployed both our core VMAX and VNX product families so they could offer their customers the best capabilities depending upon the workloads. Our high-end scale-out block solution, VMAX, continues to set the standard for mission-critical data sets needing to scale with the best performance reliability and availability. This ongoing product leadership stems in part from our ability to take these attributes and deliver them in new and value-added ways.

We did this by incorporating new media tiers, with Flash and high-capacity SATA drives, and then applying fully automated storage tiering to take full advantage of these tiers. By driving down the total cost, we can now accommodate data sets on VMAX that would never have been stored on a VMAX filled exclusively with fiber channel drives.

Moreover, by extending the reach of VMAX to a lower price point, we’re now able to meet the needs of resource constrained customers or for use cases that don’t need all the capabilities of a high-end VMAX, but do need a powerful scale-out work performance that VMAX offers.

Expanding our addressable market for VMAX has enabled us to add net new customers at an accelerated rate for several quarters in a row, and we’ll continue to expand our reach with VMAX cloud addition, which we plan to launch later this quarter.

Growth in our VNX, and VNXE, products, also improved in Q4, as customers value the simplicity and efficiency of the VNX family. VNX plays an important role in our storage portfolio, because of its rich feature set on a unified platform.

For instance, VNX boasts the tightest integration with VMware in the industry, and VMware integration can have a big impact on productivity. This was the case with Partena a social services organization in Europe, where integration between VNX and VMware cut administration time in half. Downtime was reduced from three hours per month to zero, thanks to the deployment of VNX with VPLEX to run active data centers over distance.

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