Tuesday, July 19, 2011

EMC Corp. (NYSE: EMC): Q2 Earnings Preview 2011

EMC Corporation (NYSE: EMC) is scheduled to release its second-quarter earnings after the closing bell on Wednesday, July 20, 2011. Analysts, on average, expect the company to report earnings of 63 cents per share on revenue of $3.50 billion. In the year ago quarter, the company reported earnings of 52 cents per share on revenue of $3.00 billion.

EMC Corporation develops, delivers, and supports information infrastructure and virtual infrastructure technologies and solutions. EMC is at the forefront of cloud-computing- a web-based storage option that is exploding worldwide. By 2013, this niche market is expected to reach $16.7 billion. The entire industry was worth only $6.6 billion just two years ago. EMC also owns a majority interest in VMware (NYSE: VMW).

In the preceding first quarter, the Hopkins, Massachusetts-based company's net income was $472.52 million, or 21 cents per share, compared to $372.7 million, or 17 cents per share, in the prior-year quarter. On an adjusted basis, the company earned 31 cents per share in the first quarter. Revenues increased 18 percent to $4.61 billion. Analysts, on average, expected the company to report earnings of 31 cents per share on revenue of $4.5 billion. 

At its last earnings call in April, EMC sad that it expects consolidated full-year earnings to be $1.09 per share and non-GAAP earnings to be $1.46 per share. Consolidated revenues are anticipated to be $19.6 billion for the year.

EMC has benefited greatly from the recovery in the software storage market. The storage market is booming, driven by cloud computing and an explosion of rich data, such as video, gaming and photos. EMC is well positioned to grow over the long term based on its strong storage product portfolio and increasing market share in the security and intelligence segment. However, the company contnues to face intense competition from International Business Machines Corp. (NYSE: IBM), Hewlett-Packard Co. (NYSE: HPQ), Dell Inc. (NASDAQ: DELL) and NetApp Inc. (NASDAQ: NTAP) in the storage segment, which is its primary revenue growth segment.

Through a combined focus on revenue growth, accelerated investment in research and development, and continued cost containment efforts, EMC expects to increase 2011 earnings. The expense reductions are encouraging, and are likely to lower the spending base, with a corresponding positive impact on profitability.

EMC spent $3.2 billion last year on acquisitions including Isilon Systems Inc. and Greenplum Inc. to gain products that let its customers store and analyze a vast and rapid onslaught of data from business applications and the Web. The company may spend about $3 billion on acquisitions this year, keeping pace with last year's tally, to add businesses that can help corporate customers analyze reams of data. EMC will use deals to diversify beyond the storage business that generates 75 percent of sales. EMC is also using partnerships to bolster its product lineup. The company introduced computer systems on April 5 that include statistical analysis software from SAS Institute Inc., and said on May 9 that its products would work in conjunction with the open-source Hadoop software to help companies analyze large amounts of data.

EMC’s increasing hardware sales, boosted by new products launches, will continue to drive software sales in the coming years. EMC recently launched a new unified storage line, VNX, which is expected to be the cheapest in its class. The new product allows users to manage data from a single device, reducing hardware requirements and simplifying data management. EMC is expected to make inroads into the small and medium enterprise (SME) market through VNX, competing with NetApp in cloud computing space.

Full Disclosure: None.
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