Citing an "uncertain U.S. economic climate," data storage giant EMC toned down its sales growth projections for 2001.
EMC (NYSE: EMC) said it still expects to meet its $12 billion revenue target for 2001, but added that it would grow sales 25 percent to 35 percent for the year. In the company's recent fourth-quarter report, CFO Bill Teuber had said the company will continue to grow sales in the mid-30 percent range in 2001.
By introducing a lower range, the company, which makes systems for storing corporate data, sent mixed signals.
"It is unclear whether the company is intending to proactively lower its forecast or introduce a worst case scenario to provide a floor for the stock," said Merrill Lynch analyst Thomas Kraemer. "Based on our very positive conversations with EMC last night, it would seem that the company is responding to the stock and not changes in the business."
In morning trading, EMC was off $5.95, or 15 percent, to $37, hitting a new 52-week low. Shares have fallen 43 percent over the last 30 days.
EMC said pockets of the United States have been challenged by a sharp drop-off in spending by Internet companies. Overall demand from large global companies continues to be strong, EMC added.
The company's disclosure came just hours after analysts downgraded the stock because of a sluggish outlook from Brocade Communications Systems (Nasdaq: BRCD). Brocade's warning that sales would be flat sequentially led to a host of downgrades for rivals such as McData (Nasdaq: MCDT), down $3.09 to $22.13, and Network Appliance (Nasdaq: NTAP), down $3.31 to $3. Brocade was down $7.50 to $37.19.
Ahead of EMC's new growth targets, Morgan Stanley analyst Gillian Munson on Thursday lowered her rating on EMC to "neutral" from "outperform," but added that she thought EMC could hit its targets. "We think EMC will defend its earnings per share and revenue guidance for calendar 2001 near-term," Munson wrote in a report.
However, the analyst lowered her earnings estimate for calendar 2001 to 91 cents a share from $1 a share based on possible problems in the second and third quarters. She cautioned that possible second and third quarter troubles won't be apparent till later on, and "even if EMC doesn't lower guidance at some point this year, we think valuation changes argue for a near-term range that is lower than last night's close."
Kraemer cut his 2001 sales target from $12.6 billion to $11.8 billion and lowered his earnings projections from $1.07 a share to $1.02 a share.
A.G. Edwards & Sons analyst Shebly Seyrafi said he wasn't changing his estimates for EMC based on the news.
"I talked to the company and they don't view this as a change in guidance," Sayrafi said. Nevertheless, he said his estimates are being put at risk by the accumulation of "negative data points" being announced.
Despite uncertainties over the company's short-term problems, most analysts said EMC is a long-term keeper.
"The best of the best in the storage industry--the EMCs and the Veritases--will continue to grow," Seyrafi said, expressing surprise that EMC and Veritas (Nasdaq: VRTS), off $11.44,or 16 percent to $60.94, were in such steep decline Thursday.
Munson said EMC is still a "favorite longer-term holding." She recommends aggressive buying in the high-$20s.
Goldman Sachs analyst Laura Conigliaro lowered her estimates on EMC, but reiterated the company's position on the firm's "recommended list." "Notwithstanding these economically driven changes, we continue to view EMC's competitive position as stronger than ever," Conigliaro said in a research note.