IT spending cuts hurt EMC again

Once again blaming the slowdown in IT spending brought on by softening economy, EMC today warned that its financial results will fall well short of expectations for the second straight quarter.

The data storage market leader said its second-quarter revenue and earnings shortfall will be even more dramatic than the one it reported for the previous three-month period. EMC now expects revenue to total about US$2 billion, 18 per cent lower than the $2.43 billion that Wall Street analysts had been forecasting.

The company indicated that second-quarter profits are likely to be only about one-third of what it was expected to deliver. Earnings should total between $88 million and $132 million, EMC said - far lower than the $375 million figure that analysts had predicted. The final results are scheduled for release on July 18.

Today's warning marks the third time that EMC has lowered its business outlook since February. The company was also forced to resort to its first-ever layoffs in late May, announcing plans to cut its workforce by 4 per cent through the dismissal of about 1,100 employees.

Joe Tucci, EMC's president and CEO, described the second quarter as "a disappointment" and said the storage vendor is being hurt by "each unanticipated downward step in the global economy" and the affect the economic problems are having on IT spending by corporate users.

"It now appears that there are fewer dollars being invested in information technology than a year ago," Tucci said as part of the announcement. "The earnings results for EMC's major customers . . . have been like a ball rolling down a hill for each of the past three quarters. When our customers earn less money, most of them have less to spend on IT, and they take a longer time to spend what they do have."

The economic softening that began in the US "has now spread to virtually all international geographies," said Bill Teuber, EMC's chief financial officer. Sales outside the US in the second quarter also were hurt by the strong dollar, according to Teuber. Product sales cycles have continued to lengthen as a result, he said.

Tony Prigmore, an analyst at market research firm Enterprise Storage Group said the size of EMC's second-quarter shortfall proves the theory that data storage demand "was completely recession-proof [is] obviously not true."

Galen Schreck, an analyst at Forrester Research said he expects the IT spending clampdown to last at least until the middle of next year. He added that EMC needs to better diversify the products it offers in order to cater to users with lower-end storage needs. Many companies choose rival vendors with less expensive devices for storage installations that don't require high performance, Schreck said.

EMC wasn't the only technology vendor to warn about lower-than-expected financial results late last week. BMC Software disclosed that revenue for its fiscal first quarter ended June 30 will likely range from $338 million to $345 million, potentially as much as 5 per cent below the low end of earlier projections that the company made in April.

In addition, semiconductor maker Advanced Micro Devices said its second-quarter sales dropped off more than expected from the level reported for this year's first quarter. The company had already predicted a sequential decline of up to 10 per cent, but it now expects second-quarter revenue to total $985 million - off 17 per cent from $1.189 billion in the first quarter.

AMD blamed the larger-than-expected decline on weak demand for flash memory devices and competitive pressures, in the form of "very aggressive pricing" by Intel, that forced down the average selling prices of its PC processors. Final results for the quarter are due to be reported on July 12.