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EMC profit far below expectations

The storage giant says second-quarter earnings will be less than a third of what analysts had predicted.

Storage leader EMC warned Thursday that slowing international sales will slash profit to less than a third of analyst expectations for the fiscal second quarter ended June 30.

The company announced earnings per share will be 4 cents to 6 cents for the quarter, well below analyst expectations of 17 cents a share, according to First Call. The company's revenue will be about $2 billion for the quarter, EMC said in a statement.

EMC, which in January proclaimed itself comparatively immune to the technology spending slowdown, had hoped to earn $12 billion for the year, but the company has been backing off from that goal in recent months.

Chief Financial Officer Bill Teuber blamed the plunging profit on slowing global business.

"Clearly, the economic slowdown that began in the U.S. has now spread to virtually all international geographies," Teuber said in a statement.

The shortfall was worse even than predicted in recently lowered estimates from some analysts. In a report released Thursday before EMC issued its warning, J.P. Morgan analyst Bill Lewis lowered his estimate for the company to $2.4 billion for the quarter, with earnings of 17 cents per share.

"Given the economic malaise, it is unlikely that EMC will achieve its original revenue growth forecast of 20 percent year-over-year," Lewis wrote. "Considering that EMC?s guidance is notably divergent from every other storage industry participants? forecast, we believe earnings risk for this quarter remains."

Major customers, all facing revenue problems themselves, have been delaying and reducing expenditures, EMC Chief Executive Joe Tucci said in the statement.

Compounding the problem is that EMC is "helping customers manage through their fiscal constraints by delivering more value for their storage dollar"--in other words, cutting prices. The result is that the profit margins have been lowered more than EMC anticipated, the company said.

EMC will report complete results for the quarter on July 18.

Conditions have been difficult for EMC, a company accustomed to high growth rates and products that kept the competition at bay. Now the company is adjusting to world where it must court customers more aggressively and where layoffs are required to cut expenses.

EMC, along with database software seller Oracle, server seller Sun Microsystems and networking hardware maker Cisco, once was one of the vaunted "four horsemen of the Internet." During the headier days of the Internet, start-ups and traditional companies flocked to these companies, believing their products the best choices to quickly set up Internet operations.

Internet operations lack the sense of urgency now, however, and customers are being more discriminating. Hitachi Data Systems is encroaching on EMC's core turf, and server companies all are aggressively augmenting storage product lines of their own.

EMC's stock, currently at $30.03, has dropped 60 percent in the last year. Sun's stock has dropped 65 percent to $15.17; Oracle's has dropped 48 percent to $17.22; and Cisco's has dropped 72 percent to $17.58.