EMC: Looking For Security

Once upon a time, EMC (NYSE: EMC) was an easy company to understand. Simply put, it was a storage company. More importantly, it was a very profitable storage company – that is, until the dynamics of the industry deteriorated.

Over the past few years, EMC has transformed itself with many acquisitions. As a result, it’s now tough to conceptualize EMC.

In fact, on the company’s conference call today, Joseph Tucci, the CEO, took a lot of time explaining how all “the pieces fit together.”

Yes, as is typical, EMC is using a fuzzy phrase to define its vision: Information Infrastructure.

The good news is that EMC’s storage business still has strategic value (despite the cramped margins). After all, there is a digital explosion in data. And the data needs to be stored somewhere. But the next step is to transform the data – which is done through software.

Now, because of acquisitions, EMC can help its customers with data recovery/protection, archiving, content management, policy management, and security (with its recent mega deal for RSA).

Then there is the VMware division. This was perhaps one of the best acquisitions in software history. It’s an infrastructure technology that allows for virtualization of IT assets (basically, getting more power from existing servers). In the third quarter, revenues for VMware surged 86% to $189 million.

So, is this strategy working? Well, the stock has been in tight trading range of about $12-$14. Although, the stock fell below $10 in August and has since rallied. Then again, the software sector has been strong lately, as seen with the results from companies like Oracle (Nasdaq: ORCL).

As for the third quarter, EMC's sales increased 19% to $2.82 billion (the organic growth rate was about 17%). Net income was $283.7 million, or $0.13 per share, which compares to last year’s results of net income of $421.7 million or $0.17 per share.

But the fact remains that EMC has an enormous task of integrating the myriad companies. And, with recent inventory issues – as well as pressure on margins – there are signs of problems.

EMC definitely has a grand vision. But it may take a year or so to provide the kind of gains Wall Street wants.