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EMC cuts growth targets

Data storage giant EMC said Wednesday its first-quarter earnings will fall short of Wall Street estimates amid a slowdown in information technology spending. The company also cut its growth projections for 2001.

EMC (NYSE: EMC), one of the tech bellwethers on Wall Street, said earnings for the first quarter will be about 18 cents a share. According to First Call, analysts were expecting earnings of 20 cents a share. Those estimates were cut following EMC's Feb. 22 profit warning.

The company added that it expected revenue to grow about 29 percent to $2.34 billion in the first quarter compared to a year ago. Analysts had been expecting sales of $2.45 billion, according to First Call.

For 2001, EMC said it was confident it could "double the rate of overall IT spending for the year 2001, or more than 20 percent." EMC said in February that it expected to post sales growth between 25 percent and 35 percent. Just a month before that warning, EMC was expecting sales growth to top 35 percent.

The company also noted that it would continue to invest in research and development, a move that would produce "modest EPS growth for the year." EMC reported earnings of 79 cents a share in 2000. Analysts were expecting earnings of 94 cents a share, according to First Call.

Shares were heavily traded in morning trading, up 3 cents to $34.43. "We think the stock has already discounted this earnings miss and revision to revenues," said Merrill Lynch analyst Tom Kraemer. "We are maintaining our buy rating and believe the stock can still trade back to the mid $40s over the next 12 months."

EMC is a dominant player in the information storage sector, which had been viewed as resistant to a tech slowdown until February. Following a warning from highflier Brocade Communications (Nasdaq: BRCD), EMC cut its growth rates. EMC supplies data storage systems to banks, manufacturers, Internet providers, retailers and government agencies. Hardware sales account for the bulk of the company's revenue.

EMC maintained that demand for its products was strong, but some customers had "purchase hesitation." Joe Tucci, EMC's CEO, said U.S. customers were holding back on spending their IT funds because of negative economic news. That caution also spread to Europe, where customers also took a "wait-and-see attitude," he said. Tucci's assessment echoes what dozens of high-tech executives have said.

However, EMC did indicate that IT spending may be stabilizing. Mike Ruettgers, EMC's executive chairman, said IT budgets are "in the final firming process." After meeting with customers, Ruettgers said IT budgets have settled to reflect a slowdown for the rest of the year.

Tucci agreed. "We've seen customers redo their budgets two or three times this quarter," he said.

Despite the slowdown and analyst skepticism on a conference call, EMC was confident it could hit its latest sales target. "This forecast is realistic," said Ruettgers.

EMC reports earnings April 19. >