EMC this week reported double-digit revenue growth during its second quarter across almost all of its product lines, from storage systems and software to services. While the results met analyst expectations, some experts said EMC should be wary about losing sales in its core product, the high-end Symmetrix storage array.
EMC brought in US$1.97 billion in total consolidated revenue for the quarter that ended June 30, 33 percent more than in the same quarter last year. Net income for the period was US$193 million, a 136 percent jump year over year.
Midrange Clariion revenue was US$326 million, up 43 percent from last year. And the storage vendor's network-attached storage business was up 40 percent from the second quarter of 2003, "due in large part to the strength of our market-leading Gateway products," the company said in a statement.
EMC software revenue increased 64 percent over last year, with some of the increase coming from its acquisitions of Legato Systems, Documentum and VMware.
Excluding revenue from those acquisitions, EMC's revenue was up 19 percent year over year, according to Nitsan Hargil, an analyst at investment bank Friedman, Billings, Ramsey Group. "EMC's Documentum software did poorly; all else did very well," Hargil said
In a research note today, Hargil said that EMC's earnings were in line with expectations, "though relatively strong given some of the nervousness in the technology space."
Several storage vendors over the past few weeks have reported lower-than-expected earnings for the second quarter, including Veritas Software, Emulex and Overland Storage. Software sales in business systems from PeopleSoft, Computer Associates International and Siebel Systems have seen similar slumps.
Hargil noted that only 27 percent of EMC's revenue is from software. "That's the main reason they were immune to the downward trend," he said.
Joe Tucci, EMC's president and CEO, said in a statement that he continues to believe the "overall market environment for storage and information management technology is rich with opportunity, yet challenging, as customers continue to demand more from IT providers."
Tucci pointed to customer demand, better service and support and improved total cost of ownership as positives for the quarter.
EMC reported strong growth in sales of its midrange Clariion array line, which were up 15 percent over the previous quarter and 43 percent over the second quarter of last year. Symmetrix sales, however, declined 3 percent sequentially and 5 percent year over year.
Tom Lahive, an analyst at Enterprise Storage Group, said EMC's second-quarter earnings amounted to "huge growth" in nontraditional storage systems, such as its Centera content-addressed array, Clariion midrange array and Celerra network-attached storage server.
"The question for the company is, what are they going to do to keep their meat and potatoes Symmetrix line growing?" Lahive said.
EMC spokesman Michael Gallant said the company under-ordered the highest performing and highest capacity disk drives for Symmetrix arrays. "So, essentially there were some Symmetrix orders we put into backlog."
Gallant also pointed out that for the first six months of 2004, Symmetrix sales are up 11 percent. "The high end market is growing 3 percent a years, so we're growing at three times that," he said.
