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EMC Plays a Deft Hand

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It's not always easy to keep a neat and tidy house.

Storage giant EMC (NYSE: EMC  ) is living that lesson today. After a spate of recent acquisitions, EMC has decided to organize a couple of them under an international holding company. The idea is to give the new Bus-Tech and Isilon subsidiaries the tools to do sales on a global level, while also establishing their operational independence from EMC itself.

This is all well and good and brings back memories of how virtual computing division VMware (NYSE: VMW  ) always was allowed to march to its own drum before getting partially spun back out on the open market. But it also comes with a $90 million noncash charge for the reorganization move. As a result, EMC's fourth-quarter guidance moved the generally accepted accounting principles earnings target for fiscal 2010 down from $0.91 per share to $0.87 per share. The GAAP tax rate also moved up from 20% to 24%.

Not to worry -- all Wall Street analysts care about is non-GAAP numbers, none of which are affected at all by this charge. That's why the stock is up on a generally gloomy market day today.

Accounting shenanigans aside, EMC is clearly working hard to make the most of its acquisitions, some of which came through hard-nosed competition with rival NetApp (Nasdaq: NTAP  ) . Growth by acquisition is a time-tested strategy that has made Oracle (Nasdaq: ORCL  ) and Hewlett-Packard (NYSE: HPQ  ) into the multifaceted giants they are today, so EMC is treading in well-worn footsteps.

Add EMC to your Foolish watchlist to keep close tabs on how those integration efforts are working out and where EMC is going next.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. VMware is a Motley Fool Rule Breakers recommendation. The Fool owns shares of Oracle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

Read/Post Comments (2) | Recommend This Article (3)

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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 January 06, 2011, at 6:34 PM, Ezlington wrote:

    I have held VMW for over a year and time and again I decide to sell them and buy EMC, yet whenever it comes to the crunch moment of hitting the SELL button I chicken out.

    Comparing the Market Caps ($40:50 Bn), the P:E ratios (130: 30), knowing that EMC hold 80% of VMWares shares means that the rest of EMC's business if a freebie, so why do I not do the obvious and swap shares?

    This is not a rhetorical question, please someone give a reason for me being such a bad investor.

  • Report this Comment On January 08, 2011, at 12:51 PM, Ezlington wrote:

    Well, I did it!

    These days I tend to be a momentum player on the UK's AIM market and one of the best guides are Jesse Livermore's Rules.

    In swapping VMW shares for EMC I broke a number of those rules, but my small US Portfolio

    (MVO, TICC & EMC ) is LTB&H, not a "trading" largely because of the currency charges.

    Livermore said

    "Markets are never wrong - opinions often are."

    Well I'm not saying that the market is wrong, just that it doesn't agree with me <B>yet</b>.


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