EMC announced third-quarter earnings this morning, citing growth across CEO Mike Ruettgers' five key areas. Taking a quick look at those areas, the company is well-positioned to make further strides in the storage space. However, disappointing software sales were a chink in the EMC announcement. The company insists the component shortage that limited high-end sales has been solved.
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The world's largest computer data storage provider EMC (NYSE: EMC) reported better-than-expected earnings this morning, citing strong demand for network storage solutions, international growth, and mid-market penetration. The announcement wasn't all sun and roses for shareholders (this one included) though, as a Fibre Channel-related component shortage hurt software sales. EMC's fiscal third-quarter net income was $458 million, or $0.20 per share, compared to $296 million, or $0.13 per share, in the same period a year ago. That was a 55% increase year-over-year and exceeded the Street consensus that called for the company to earn $0.19 per share. On the revenue side, top-line growth increased 34% from the year-ago period to $2.28 billion. Take a quick look at year-over-year storage-related revenue (94% of total revenue) growth: Enterprise storage systems improved 43%, mid-market storage grew 40%, and enterprise storage software increased 61%. The Hopkinton, Massachusetts-based company continues to make strong gains. In a conference call today, CEO Mike Ruettgers outlined the five areas that will drive growth: international sales, storage networking, mid-market storage, e-business initiatives among the Global 2000, and storage software. Foolish Research Analyst John Del Vecchio will look at these five pillars in his research report due out soon (he did the same in his last), but let's look at each one quickly. Beyond the numbers Networking of storage infrastructure is another area of importance, as the company boasts the ability to integrate storage area network (SAN) and network-attached storage solutions (NAS). SAN revenue increased 380% year-over-year to $480 million, while NAS grew nearly threefold to $133 million. These numbers prove once again the company's ability to take advantage of the strong demand for storage solutions among enterprises. The company is aggressively attacking the mid-market, which it gained entry into by its acquisition of Data General last year. The company's midrange system, CLARiiON, increased 40% to $165 million in revenue. EMC is just beginning to attack this space, which the company estimates to be worth $12 billion. E-business initiatives among the Global 2000 continue, as those companies further Web-initiatives and realize the improved productivity that storage spending yields. Ruettgers cited recent statistics from Dataquest showing the shift in Information Technology (IT) spending toward storage solutions. The numbers showed IT spending for PCs increasing 5.9%, 6.2% for servers, but more impressively 22% for storage infrastructure. These numbers bode well for the future of EMC. Finally, software storage increased 61% from the year-over-year period to $332 million. However, it decreased sequentially from the prior quarter figure of $350 million. The company indicated the slowdown was due to a Fibre Channel-related component shortage and the problem has since been solved. Although this figure still allows the company to meet its long-term goal of software growth in excess of 50%, the figure is a bit disappointing considering the recent trends and high demand for software to increase the functionality of storage systems. This was the only chink in the EMC armor today, albeit a small one. Overall, the quarter was very strong.
First, the company showed continued growth abroad. Storage revenues year-over-year grew 130% in Asia-Pacific, 62% in Latin America, and 39% in EMEA (Europe, Middle East, and Africa). These figures signify the strong demand internationally for storage infrastructure and this will continue to be an important area of growth. On a related note, it posted a DSO (Days Sales Outstanding) of 74, improving two days from the previous period. This is particularly impressive considering the international expansion.
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