EMC Poised to Cash In on Cloud Computing in Latest Earnings

Includes: DVMT, VMW
by: Wall St. Cheat Sheet

By Carolyn Austin

EMC Corporation (EMC), a market leader in computer storage devices and storage networks, reported earnings today showing substantial improvements in gross and operating margins. Share prices rebounded after a slight dip for a modest gain in early morning trading following the news.

The $43B maker of data storage devices and services reported a cash position (including investments) of $10.5B and plans to repurchase up to $1B of outstanding shares by year-end. A darling of Wall Street during the hi-tech bubble, EMC also owns a majority interest in VMware (NYSE:VMW) and recently acquired Greenplum, a data warehousing and analytics company.

  • Earnings (3Q 2010): EMC met estimates of $0.30 per share ($.07 higher than a year ago, an increase of 30 percent YOY); Diluted EPS (GAAP) came in at $0.22 (up 57 percent YOY).
  • Revenues: EMC reported record consolidated revenue of $4.21 billion, 20 percent higher YOY.
  • Notable Stats: Revenue grew about 20 percent both inside and outside the US; total revenue was about evenly divided between US and non-US sources.
  • Core Product Updates: Strong growth in high-end storage and security products.
  • Competitors: NetApp (NTAP) and Brocade Communications (BRCD).
  • Key Quotes:

Joe Tucci, EMC’s Chairman and Chief Executive Officer, highlighted the company’s growth this way:

With our compelling technology and services portfolio, partner ecosystem, and strong product roadmap, we remain confident that we’ll continue to produce double-digit growth rates over the long term.

And David Goulden, EMC’s Executive Vice President and Chief Financial Officer, brought the focus back to the future of EMC in cloud computing, the next wave in IT:

For the third consecutive quarter EMC achieved our ‘triple play’ – we gained market share, invested aggressively to capitalize on the shift to cloud computing, and increased profitability.

  • Technicals: The company expects $1.25 in nonGAAP eps for the year and $0.91 in diluted eps — a healthy increase of about 30 percent from a year ago. Despite selling near its 52-week high the stock looks undervalued — its strong cash position, operating improvements, and growth in market share suggest the company is poised to cash in on cloud computing, the next wave in IT technology.

As further evidence, the stock received 5 upgrades within the last six months. On the technical side, the chart looks positive with the stock trading more than 4 percent above the 50-day EMA. This looks like a win for the long term but with stochastic overbought and some insider selling recently, you may want to buy when the stock shows some weakness.

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Disclosure: No position