EMC Revenue Slides Ahead Of Dell Purchase

The shine has come off Dell’s hugely expensive acquisition of storage EMC after the latter’s first quarter financial results that revealed orders are down.

EMC called the results “solid”, but the news comes after Dell confirmed major challenges ahead of its proposed acquisition of EMC, including Dell’s own reliance on its declining PC business.

Sales Decline

Last month’s Dell’s holding company (Denali Holding Inc or DHI) warned it would take on about $59.1bn (£41bn) in debt as a result of the acquisition.

It also confirmed that it plans to take aggressive measures (i.e. cost cutting) to pay down this debt within the first 18 to 24 months after the merger. It hopes to achieve this in part by selling off what it called “non-core” assets of the combined company, including EMC assets.

DHI had revealed a $1.1bn (£765m) loss for the year, 10 percent up on the $1.2bn (£834m) loss for the previous year, as Dell continues to feel the pain from the declining PC market.

EMC meanwhile has just revealed its first quarter results, which may make for uncomfortable reading for new owner Michael Dell.

For the three months ending 31 March, EMC posted a net profit of $268m (£186m), up from the $252m (£175m) profit it recorded in the same year-ago quarter.

But there was bad news on the revenue side, after the company posted sales down to $5.5bn (£3.8bn) from $5.6bn (£3.9bn) a year earlier, as the impact of a decline in product sales was felt, despite a modest rise in Service revenues.

“We had a solid first quarter, generally in-line with our expectations when adjusted for an excess of unfulfilled orders at the end of the quarter,” said Joe Tucci, EMC chairman and CEO. “The broad secular IT trends reshaping our industry continue playing out as we expected. Our investments in growth platforms are increasingly gaining momentum, and we are confident in the depth and breadth of our product portfolio.”

“We continue to make progress on our combination with Dell,” said Tucci. “Integration planning has accelerated to ensure we begin at full speed upon closing, the leadership team has been established, and we’ve received the vast majority of anti-trust approvals required. We expect the transaction to happen on the original terms and within the originally announced timeframe.”

There was some good news as VMware’s first-quarter revenue within EMC was up five percent year-on-year.

EMC said that as it is currently in the process of being acquired, it will not be providing outlook for its 2016 financial results.

Expensive Acquisition

Dell announced last October that it would acquire EMC for a whopping $67 billion (£44bn), making it the largest ever technology acquisition in history.

The acquisition so far has not been trouble free.

Investors have expressed their concern, most notably from Vinod Khosla, the billionaire co-founder of Sun Microsystems and now head of Khosla Ventures, a venture capitalist firm.

Confidence in the deal was also not helped by the sliding stock price in EMC’s subsidiary VMware. And there are also concerns over a possible hefty bill from the taxman.

That said, the deal moved one step closer after the European Commission cleared it in February.

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