EMC posted strong quarterly results yesterday in line with expectations, and gave healthy guidance for the current quarter and a less formal prediction that 2005 will show “more of the same” IT market growth already seen this year.
The dim spots in EMC’s picture are the slowing sales of its flagship Symmetrix arrays and legacy software, and the limited growth of its Legato backup software sales. EMC played down the threat posed by the recently launched high-end hardware from its arch-rivals Hitachi Ltd and IBM Corp, and predicted that their storage virtualization technologies will not sell widely until 2006.
Although EMC CEO Joe Tucci balked at giving official revenue guidance for the company beyond the current quarter, he predicted that the overall market in 2005 will be very like 2004, and that EMC will grow its revenues at twice the rate of the storage sector. This year EMC expects overall IT spending to grow by around 4%, and storage spending to grow by around 7%.
For the quarter ended September 30 2004 EMC posted total revenue of $2.0 billion, up 34% year-on-year – its fifth consecutive quarter of double-digit revenue growth. GAAP net income was up 37% at $218 million.
Revenue growth figures for EMC are complicated by its purchases last year of Legato, Documentum and VMWare, but EMC said its third quarter revenue was 20% higher than it and those three companies totaled last year. Excluding the diminishing currency effects of the weakened US dollar, the growth was 18%. Excluding currency or acquisitions, EMC’s core revenue grew by 19%.
We don’t believe many tech companies of our size will post that growth, said Tucci.
For the current fourth quarter, EMC gave guidance of $2.23 billion to $2.27 billion revenue, with non-GAAP EPS of $.011 to $0.12.
The mid-range continues to show the strongest growth for EMC, and its combined Clariion, NAS and Centera sales were up 50% year-on-year, heavily outpacing overall market growth. Meanwhile Symmetrix sales were down 1% sequentially, continuing a trend that reflects an overall market move away from high-end gear.
High-end competition is increasing, as Hitachi Ltd last month launched a giant version of its Lightning disk array that can virtualize its own and third-party disk capacity, and IBM launched a new Shark DS8000 that has the potential to soon do the same, alongside a new mid-range to high-end baby Shark, the DS6000.
Clearly the new products are more competitive…[but] they are not game-changing products, Tucci said. We haven’t played our next round of platform cards, and we’re comfortable with our competitive position, he said.
All these arrays at the high-end in most cases overshoot what customers need from a performance view, Tucci said. But the real [competition] is in functionality, ease-of-use – how to blend these things together to provide a total solution, he said.
The virtualization software in the Hitachi box, and the potential of the IBM box to run this and other software has impressed analysts. But Tucci insisted virtualization will not produce a lot of revenue for the industry in 2005. EMC’s only publicized heterogeneous virtualization plans are to ship software running on smart SAN switches next year.
Sales of management software working only with EMC hardware fell sequentially by 1%, but EMC stressed that for the first nine months of this year they grew by 25% year-on-year. We’re taking no remedial action, the company said.
Legato sales were up only 1% sequentially. EMC said that Legato’s prices continue to undercut those of rival Veritas products. Its only explanation of why Legato’s sales grew so slowly is that storage software buyers have recently adopted the prudent policy of only buying what they need when they need it.
The company forecast that iSCSI sales will pick up in the second half of 2005, and that disk-based backup and recovery will grow very rapidly next year. Naturally, given its heavy focus on ILM, EMC predicted that ILM will go prime time in customers’ minds and budgets in 2005.