Tech Industry

EMC hits targets, reaffirms growth goals

The storage specialist matches analysts' lowered expectations for the first quarter and reiterates its outlook for 20 percent revenue growth for 2001, sending its stock upward.

Storage firm EMC matched analysts' lowered expectations for the first quarter and reiterated its outlook for 20 percent revenue growth for 2001, sending its stock upward Thursday morning.

Shares rose $3.29, or nearly 9 percent, to $39.95 in early trading.

EMC earned $399 million in the first quarter, or 18 cents per diluted share, on sales of $2.34 billion. Analysts were looking for the company to report earnings of 18 cent per share and revenues of $2.38 billion, according to First Call.

Just one quarter ago, EMC had argued it was comparatively immune to the technology spending slowdown, with Chairman Mike Ruettgers declaring "We do not see a slowdown in the first half for information data storage." But investors were more skeptical and sent the company's shares down in recent months.

The spending slowdown first hit PC makers such as Compaq and server makers such as Sun Microsystems, then spread to storage specialists such as EMC and Network Appliance.

Looking ahead, EMC said it expects to stick to the guidance it issued last week, when it told investors that its sales growth would slip on decreased corporate spending. The company also said then that it was less likely to meet its goal of $12 billion in revenue this year. EMC?s warning followed a similar statement from competitor Brocade Communications Systems.

Company officials said they expect to see revenue grow more than 20 percent from the earlier period, which would put it at around $10.6 billion.

But the company will slow its plans to hire up to 7,000 workers, and gross margins could slip a bit as it fights pricing pressure in the market for its lowest-tech products.

EMC in February axed several hundred employees but was quick to say the cuts were because of employee performance reviews and corporate strategy changes, not economic conditions. The company touted the plan to hire 7,000 new employees as evidence of the company's financial health.

EMC's core product, its high-end Symmetrix storage system, faces competition from IBM, Hitachi Data Systems and Hewlett-Packard, while lower-end products add competitors such as Sun, Compaq and Network Appliance. Sun has long had its eyes on EMC's systems, often paired with Sun's servers, and now has a new chief leading its storage group's charge.

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.

The Hopkinton, Mass.-based company expects that the market for direct attached storage--systems linked directly to servers--will see revenue declining significantly faster than analysts had predicted.

"Customers making purchases in this segment tend to place heavier value on price," Ruettgers said during a conference call.

EMC expects margins to be between 53 percent and 56 percent for the year, a drop from the 58 percent recorded in 2000.

The company is hoping to boost its market share for networked storage, which involves hooking up storage systems to an entire network rather than directly to a server. Networking storage revenues were up 158 percent year over year to $833 million and is the fastest-growing segment of the company?s business, officials said.

But the company expressed hopes Thursday that things are looking up. "We believe that most IT budgets in the U.S. and many international markets are now in their final firming stages for the year, reflecting both the current economic outlook and the realization that information is at the center of the business," Ruettgers said.

Sales of information storage, which accounts for 97 percent of the company?s revenue, grew 37 percent compared to a year ago, including a 158 percent growth in the company?s networked information storage business.