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EMC posts loss of nearly $1 billion

The storage maker blames pricing pressure and a slowing economy for its third-quarter loss of $945 million.

Struggling storage maker EMC posted a loss of almost $1 billion, as it tried to recover from a slowing economy and increased pricing pressure from competitors.

see related story: Is EMC a takeover target? Excluding a restructuring charge, the Hopkinton, Mass.-based independent provider of storage systems recorded a loss of $270 million, or 12 cents per share. Including the $825 million charge, EMC lost $945 million, or 43 cents per share.

The restructuring charge included the costs of writing off inventory and investments, shutting facilities, and laying off workers. EMC said Wednesday that it will eliminate 4,000 jobs, almost twice as many as it announced in September.

Revenue for the company slid 47 percent from a year ago to $1.21 billion. Analysts had been expecting the company to lose 5 cents a share, according to First Call.

"This is not a zero-sum game," executive chairman Mike Ruettgers said during the company's conference call. "Not even combined revenues in storage from IBM and Hitachi, much less their incremental business, equal the drop-off in our business. Much of this decline in the storage business is due to the economy and much has just disappeared."

Ruettgers put some of the blame on a slowing economy, as well as the Sept. 11 attacks, which he said prompted companies to cancel business toward the end of the quarter. Pricing pressure also took about 5 percent out of its revenue, he said.

Another factor was the desire of customers to purchase storage in smaller sizes, 2 terabytes or less. EMC specializes in products that work with mainframes and other high-end servers and that typically run into the millions of dollars.

Storage had been seen as a mandatory purchase, something that would survive even significant cost-cutting measures. But now, customers are beginning to scale back there as well, looking at low-end products in smaller sizes and pushing business toward EMC competitors IBM and Hitachi, Ruettgers said.

But some of the blame does fall within the company, he said.

"We're mad at ourselves that we slipped in execution in (the third quarter). We understand the challenges ahead," Chief Executive Joe Tucci said.

The company said that cost-cutting measures, including the layoffs, should help save $800 million annually by the middle of next year. EMC expects to be profitable again in the second half of next year, CFO Bill Teuber said.

While other tech companies have been struggling with a slow economy, EMC's problems have been fast and furious. As recently as January, Ruettgers said he did not see any slowdown in storage demand.

But the company then lowered expectations in February, and cautioned in July that it would be hurt by slowing international sales.

Besides the factors company executives mentioned, EMC has also been hurt by the ability of competitors like IBM and Hewlett-Packard to package together storage and other products and services.