What's Wrong With EMC?

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It ain't easy to impress Mr. Market these days. A few days ago, Advanced Micro Devices (NYSE: AMD) surpassed every reasonable expectation -- and got taken out behind the woodshed for a solid beating. Rule Breakers pick Polycom (Nasdaq: PLCM) may not have impressed, but it certainly didn't deserve a 17% haircut.

And today, there's storage giant EMC (NYSE: EMC) reporting as hale and sound a quarter as one could hope for. Revenue of $3.52 billion is a respectable 8% sequential uptick and far ahead of management guidance, which pointed to no more than 5% higher sales. Non-GAAP earnings per share of $0.23 represent a 28% quarter-over-quarter jump, putting EMC essentially even with the year-ago profit.

But EMC's shares are 2.8% cheaper after that seemingly impressive report. Life just isn't fair sometimes.

And it's no sector effect this time. Competitors IBM (NYSE: IBM) and NetApp (Nasdaq: NTAP) are outperforming the S&P 500 today with positive returns. Compounding the problem is VMWare’s (NYSE: VMW) unexciting earnings report. EMC still maintains a majority stake in VMWare, so when VMWare doesn’t perform up to its usual high-growth standards, it causes some added pain at its parent company.

Perhaps we're watching investors take some profits and run. After all, EMC gave shareholders a market-beating 38% return on their investment over the last six months. That's pretty exciting for a stock with an average beta, big market cap, and rare price-change revolutions. Now, a 3% discount doesn't exactly make for an ideal buy-in point, but CEO Joe Tucci believes that his company is "strategically aligned with the major technology shifts and well positioned to play a pivotal role in the IT industry for the next decade." That’s a sentiment I can agree with. This stock deserves a second look from any long-term investor who wants to ride the long-term trend toward companies needing to house infinity-minus-one bits of data.

Have any thoughts on EMC’s quarter or on technology in general? Sound off in the comments section below.

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Fool contributor Anders Bylund owns shares in AMD, but he holds no other position in any of the companies discussed here. Polycom and VMWare are Motley Fool Rule Breakers selections. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 22, 2009, at 6:31 PM, nuexplore wrote:

    Why do you think PLCM is a buy when you are clueless as to why if fell so much? You are truely a foole.

  • Report this Comment On October 22, 2009, at 11:19 PM, IBMGURU wrote:

    VMware's hold won't last. Microsoft will eventually get it's vitualization product to work. Cytrix is poised to take a healthy share of the thin client market as forecast are that 40% of PCs will be thin clients by 2012 and it will allow them to work their way into the server area. IBM and HP are letting EMC stick around because they are not storage centric and have too many old school slow to react people. Solid State Disk are 2 years out because they are too expensive, but customers and EMC business partners buy into the buzzwords dedup, virtualization, encyption, SSD, etc. How is it customers don't see the bulldog like sales tactics by EMC for what it is.

  • Report this Comment On October 23, 2009, at 1:34 AM, singlady wrote:

    About time shareholders ask what's the matter with EMC! If you think about the exponential growth in storage given all the internet services (like yahoo/facebook/google) , cloud computing (crm) etc that are the growth engine in today/tomorrow technology, yet they are still not delivering the kind of value one would expect. This company runs like an old schoolboy network and have far too much dead woods and inefficiencies around. They grow by acquiring too many small but strategic businesses but does a very bad job of harnessing the effectiveness & results from the integration. I think the whole management has to be relooked, and fresh blood to unlock the company's growth once again. This is a sell long ago for me.

  • Report this Comment On October 23, 2009, at 10:39 PM, bigDv wrote:

    What a surprise from a reader named IBM Guru that they are not in favor of EMC! Complaining about sales tactics? Come on now...are we a little upset because EMC eats your lunch every day? EMC is the clear leader in the storage market and will be for years to come. SSD drives are moving out the door faster than ever as prices continue to drop. EMC stock will take off and if you're not on board it's your own fault!

  • Report this Comment On October 29, 2009, at 11:29 PM, JjcampNR wrote:

    IBMGURU:

    #1 - It's Citrix, not Cytrix.

    #2 - VMware makes a nice little product called VDI, it does thin client desktops and works beautifully with Wyse's products and pretty much everything else.

    #3 - VMware has patents around a number of its technologies, preventing others from an easy reverse engineering type implementation of their features.

    #4 - It's dedupe, not dedup if you're using the shorthand. Also, that's not a "marketing" term, there are a number of products out there now that do it well resulting in major storage savings, a few are now owned by EMC (i.e. DataDomain).

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