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Hot storage market boosts EMC earnings

The storage maker beats Wall Street expectations by 2 cents a share for the quarter, as it tops $2 billion in quarterly revenue and sees accelerating growth in several areas.

    Storage maker EMC beat Wall Street expectations today by 2 cents a share on strong revenue and profit growth.

    Net income for the quarter was $429 million, up 50 percent from a year earlier, on total revenue of $2.15 billion, up 30 percent year-over-year. EMC posted earnings of 19 cents per share on a diluted basis, a 46 percent increase from the second quarter of 1999.

    The 19-cents-a-share figure, which was adjusted for a 2-for-1 stock split June 2, beat a First Call/Thomson Financial estimate of 17 cents per share. A year earlier, EMC posted profits of $286 million, or 13 cents a share.

    Shares in EMC, which announced the results before U.S. markets opened today, closed up $4.44, or 5.7 percent, to $83.

    Hopkinton, Mass.-based EMC set several milestones for the quarter, topping $2 billion for the first time in quarterly revenue and seeing accelerating growth in several areas: 96 percent in enterprise storage software to $351 million; 36 percent in enterprise storage systems; and 30 percent in midrange storage systems to $141 million. Total storage revenue surged 43 percent year-over-year.

    "This was our strongest quarter ever," Mike Ruettgers, EMC's chief executive, said in a statement. "Storage has become the hottest of all information technologies because it now determines an organization's ROI--return on information."

    Some of the revenue gains come from Aviion servers and Clariion storage systems, which EMC acquired last year with the purchase of Data General. Clariion midrange systems posted their best quarter ever.

    "EMC is running on all cylinders," Technology Business Research analyst Brooks Gray said. "They've got some very positive growth going with CLARiiON. For that to jump from $98 million in Q1 to $141 million in Q2 shows their marketing and sales force efforts around that product line are really starting to work."

    Symmetrix storage systems nearly doubled revenue year-over-year, pulling in $749 million in revenue. The Symmetrix 8000 storage family pulled in $500 million in its first quarter of availability.

    Storage area network revenue shot up eightfold from a year earlier and 55 percent sequentially to $400 million.

    EMC also reported strong international growth, with year-over-year storage revenue up 111 percent in the Asia-Pacific region and 42 percent in Europe, the Middle East and Africa.

    Despite gains, EMC faces increasing challenges from Hewlett-Packard, which recently unveiled compelling storage alternatives; it also faces competition from a storage alliance formed by Compaq Computer and IBM.

    Storage sales are booming in part because of the demand created by the Internet. The market for storage management software, for example, grew 47 percent in 1999 over the previous year, according to market researcher Dataquest. The market research firm predicted revenue of $14.7 billion in 2004, up from $4.2 billion last year.

    EMC led the storage software management market last year with 18.2 percent share, compared with 17.3 percent for second-ranked IBM/Tivoli, according to Dataquest.

    EMC's success selling storage software is one of the most important factors driving profits, Gray said.

    "The continued software growth, that's what's fueling their margins," he said. "It attests to the fact they have the leading software management system in the storage market. Their performance levels, quality and the service that goes along with it, the competition isn't there yet."