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EMC Corp Falls Short of Q4 Earnings and Revenue Estimates

EMC CorporationEMC reported its fourth quarter 2015 results. EMC's adjusted earnings (including stock-based compensation expense but excluding other items) of 54 cents per share lagged the Zacks Consensus Estimate of 55 cents. Earnings also declined 8.5% year over year.

Quarter in Details

Quarterly revenues of $7,014 million fell short of the Zacks Consensus Estimate of $7,093 million and declined 0.5% year over year. Product sales decreased 4.8% year over year, while services increased 6.4% from the year-ago quarter.

EMC Information Infrastructure segment revenues fell 4.3% year over year to $5,070 million. RSA dropped 10.1% while Information Storage revenues fell 3.8% year over year. The Enterprise Content Division decreased 6.3% year over year.

VMware Virtual Infrastructure continued to impress with revenue growth of 10.3% year over year to over $1.8 billion. Pivotal reported revenues of $83 million, up 27.7% year over year.

On a geographical basis, revenues from North America remained flat on a year-over-year basis. Revenues from Europe, Middle East and Africa region declined 1% year over year. Revenues from the Latin America region were down 16% year over year. Revenues from Asia Pacific and Japan were also flat on a year-over-year basis.

Non GAAP gross margin decreased 180 basis points (bps) to 63.6%. Non GAAP operating margin was down 370 bps to 25.2%.

Balance Sheet and Cash Flow

As of Dec 31, 2015, cash and cash equivalents including short-term investments were $9.3 billion compared with $8.3 billion at the end of Dec 31, 2014.

In 2015, EMC generated $5.4 billion in cash flow from operations as against $6.5 billion in 2014.

Our Take

EMC has been broadening its presence in the cloud computing and Big Data space. Additionally, its strong footprint in the disk storage system market remains a positive.

The last few months have been a roller coaster ride for EMC following its definitive agreement to be acquired by Dell for about $67 billion. Per the deal, EMC shareholders will receive $24.05 per share in cash along with tracking stock related to a portion of EMC's economic interest in VMware VMW .

However, the company has faced a lot of issues regarding VMware (its most important division). In fact, shares of VMware have been going downhill ever since the news of the acquisition came out.

This loss led management to take some measures to regain investors' confidence as declining valuation of VMware would mean lower per share sale price for EMC investors at the time of the deal. This prompted EMC to back out from its earlier proposition of forming Virtustream Cloud Services Business with VMware as announced in its last earnings.

While acquisition related uncertainty lingers, it still seems a positive for EMC as its core data storage business has been struggling due to growing competition from flash storage providers.

Meanwhile, the company is focused on streamlining its operations to minimize costs. Last month, it had announced its plans to reduce its workforce by an unspecified number for cost savings of about $850 million.

The acquisition is expected to be closed between May and Oct 2016.

Currently, EMC has a Zacks Rank #4 (Sell).

Stocks to Consider

Better-ranked stocks in the same sector include Datalink Corporation DTLK and Qumu Corporation QUMU , both carrying a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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