EMC Blames US Government For Slowdown ‘Disappointment’

Storage titan EMC has disappointed Wall Street with its latest financial results that revealed a modest 5 percent year-over-year revenue growth.

However, the report also indicated that revenue and profit streams are slowing down at the company, and it has cut its sales and earnings forecasts for the year, thanks to a drop in US government spending.

Financial Miss

The storage, virtualisation and cloud software, and security conglomerate missed Wall Street analyst consensus forecast on both revenue and profit.

For the third quarter ending 30 September, EMC posted net income of $860 million (£530) down from $881m (£543m) a year earlier. During the latest quarter the company made 40 cents (£0.24) per stock share for its investors. Analysts had expected 45 cents (£0.28).

Revenue meanwhile totalled $5.54 billion (£3.4bn), down from $5.3bn (£3.3bn) in the same year-ago period. This was well under the $5.79 billion (£3.6bn) that had been projected by the company and analysts.

The stock closed down 4.75 percent at $24.04 (£14.83) but rebounded a fraction in after-hours trading to $24.10 (£14.86).

Disappointed Executives

For several years, EMC became accustomed to record revenue and profits quarter after quarter, racking up more than 20 consecutive reporting periods in double-digit revenue and profit margins. However, things began to slow down in 2012, and the trend appears to be continuing.

Executives at the Hopkinton, Mass.-based company expressed “disappointment” with the company’s financials. They pointed to a slowdown in US federal spending as a large part of the problem.

“While our financial results for the third quarter were impacted by a decline in US federal spending and a backend-loaded quarter, we achieved almost all of our strategic and operational goals,” EMC President and Chief Operating Officer David Goulden said.

“We were pleased to see storage demand accelerate in the third quarter – excluding US federal – and we think this is an encouraging sign for the storage market overall.”

Two key EMC subsidiaries, VMware and Pivotal, did well, which contributed mightily to EMC’s revenue total. VMware beat earnings estimates with 84 cents (£0.51) per share; Wall Street consensus had been for 82 cents (£0.50).

VMware contributed $1.29 billion (£796m) in revenue – up nearly 20 percent from 2012 – and contributed net income of $363 million (£224m).

Pivotal, which makes cloud management tools and was acquired in March 2012, increased its revenue 14 percent from the previous quarter. In Q2 2013, Pivotal had generated $70 million (£43m) in revenue and increases its sales to $80 million (£49m) in the third quarter.

EMC CEO Joe Tucci kept a stiff upper lip, saying in a statement: “Despite our disappointment with our quarterly results, our confidence in the success of our strategy over the long term has never been stronger.”

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Originally published on eWeek.