EMC's Results in its Own Words

| About: Dell Technologies (DVMT)

Excerpt from EMC's earnings conference call; CFO David Goulden is speaking:

Q3 revenues were a record $2.815 billion, up 19% from last year. This includes approximately $38 million from our new security division. Without security, Q3 revenues were $2.778 billion, up 17% over Q3 of last year and also a record quarter.

Q3 GAAP EPS were $0.13. This includes slightly less than a $0.01 from our new security division, principally due to a $23 million IT R&D charge. Without security, EPS for the quarter was also $0.13. EPS was up 30% over last year on a comparable basis. This growth compares GAAP EPS of $0.13 for Q3 this year against $0.10 last year after adjusting Q3 2005 EPS of $0.17 by $0.03 had we expensed stock options; and by $0.04 had we eliminated a one-time tax benefit.

Revenue growth of 17% for the quarter was clearly very strong, but we did benefit from the unusually high backlog levels we had at the end of Q2. As we finished Q3, we were able to take advantage of having completed our major product transitions, and of higher inventory levels, and of a Saturday quarter end to drive Q3 backlog to more seasonal levels.

If we look at the first nine months of 2006 for a more normalized view of growth, on a YTD basis total revenues are up 14% over last year, excluding security, supporting our view that EMC’s growth profile is strong.

Looking at our corporate revenue mix in Q3, our systems revenues were up 19%, software revenues were up 25%, and services revenue were up 7%. Year-to-date, systems revenues were up 15%, software was up 17%, and services were up 7%, highlighting the strength of our product business and of our business model.

Turning to our geographic results for Q3, North America revenues were very strong, up 21% year-over-year. The environment in North America continues to be good, especially in the commercial marketplace and for high-end systems.

EMEA revenues were up 19%, with good balance across the countries and regions. We also saw strong demand for our mid-tier CLARiiON systems in EMEA.

APJ revenues were up 7% from last year, and 8% from Q2, representing a modest improvement in growth. We continue to strengthen our management team in this region, and I am very pleased to announce that during the quarter, we hired Dennis Yip, a seasoned executive, to head up our Greater China region.

Finally, Latin America revenues were up 80%; Argentina and Venezuela were strong performers this quarter.

Now let’s move from the geographic conversation to the revenue results from our content management, VMware and security and represent the solution sets we take to market. First, let’s take a look at our storage business, which consists of our storage hardware products and the software that runs on them, including Symmetrix, CLARiiON, Centera, Celerra, Invista, and Connectrix; plus, our storage software including Back-up, Recovery, Rainfinity, Power Path and resource management and our storage-related professional and customer services.

Total storage revenues for Q3 were $2.45 billion, up 14% over last year and up 10% on a year-to-date basis. We believe we continue to gain share in our core storage business. Symmetrix revenues were up 21% over Q3 last year. Of the Symmetrix systems sold in the third quarter, 90% of the terabytes shipped were DMX-3 technology.

Last quarter we explained we didn’t have enough product to meet the surge of DMX-3 orders at the end of the quarter, resulting in lower than expected Sym revenue growth. You can see that the strong bounce-back in Symmetrix growth this quarter and the 10% year-to-date growth of Sym revenues confirms the demand for our DMX-3 systems is strong, and we are gaining share in the high-end markets.

Turning to CLARiiON, CLARiiON revenues were up 18% over Q3 last year. Looking at those products that offer the new CX-3 platform, 85% of the terabytes shipped in Q3 were on CX-3 technology. Last quarter we explained to you that the major transition from CX-2 to CX-3 midway through the quarter impacted CLARiiON growth. The strong bounceback from Q4 growth last quarter to 18% growth this quarter confirms the demand for our new CX-3 products is strong, and returns us back to share gains in the mid-tier storage. You can also see that our major Sym and CLARiiON transitions are behind us.

Staying within the storage business, resource management software license revenues were up 17%, led by SMARTs licensed revenue growth of over 100%. SMARTs license growth is also up 100% year-to-date on an apples-to-apples basis, and we are very pleased with this growing customer adoption of model-based resource management.

Finally, within the storage business, network license revenues were up double-digits again in Q3.

Turning to our content management business, which consists of our content management software products and related professional and custom services, total revenues for Q3 were $138 million, up 25% over last year and up 44% on a YTD basis. During Q3, we announced our 15,000th content management customer, reflecting the strong share gains we have made in this market. Additionally, just a few weeks ago we announced our new enterprise content management alliance with Microsoft. Through this partnership, we will bring to market new solutions that integrate the EMC Documentum platform with multiple Microsoft technologies.

Content management license growth for the quarter was up only 11%. As you know, within the content management business, we win a large number of mid-sized transactions and a few very large orders each quarter. A single large order can represent a 5% to 10% swing in licensed growth rates, making licensed growth quite lumpy. In Q3, a couple of the large orders we were chasing did not close at the end of the quarter, impacting Q3 licensed growth rates. We have not lost any of these transactions, and when we look at our Q4 pipeline, we are confident we will have a strong Q4 and a strong 2006 in content management.

It is also worth noting that on a year-to-date basis, content management licensed revenues were up nearly 50%. Obviously Captiva was a strong contributor to this growth, but on an apples-to-apples basis, content management software license revenues were up over 20% year-to-date; clearly we are gaining share here as well.

VMware had another tremendous quarter. Total revenues were up 86% to $189 million in Q3, continuing VMware’s position as one of the fastest-growing software businesses. Of note this quarter, VMware’s X86 virtualization technology was named one of the 25 most influential products of the last 25 years by eWEEK Labs. This ranked VMware above the Apple Macintosh, Lotus 123, the Palm Pilot and Microsoft Office. I am sure you will agree that this is pretty impressive, especially considering that VMware has been around for only a few years.

Now let me turn to our new security division. We obviously reported only a partial quarter’s revenue in Q3. For the full quarter, these companies reported an impressive 30% year-on-year revenue growth. Also, each of RSA and Network Intelligence had record quarterly revenues. Given the fact that customers knew about the pending merger, RSA’s record quarter is an indicator of how excited the customer base is about the combination with EMC. So hopefully you can see why we are very enthusiastic about the product potential here as well.

Finally, Dell was 15% of our total revenues and one-third of CLARiiON revenues this quarter.

Turning to the rest of the income statement, consolidated gross margin for the quarter was 52.7%, the same as Q2. The higher mix of systems revenue in the quarter had an unfavorable impact on margins of 50 basis points. Operating income margin for the quarter was 12.9%, excluding both the $23 million IT R&D charge and a $3 million restructuring reversal. This is up 220 basis points sequentially. The tax rate for the quarter was slightly north of 26%, and we expect the tax rate for Q4 to be approximately 26% as well.

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