Seeking Alpha

EMC ticks higher after guiding in-line, upping buyback

EMC (EMC +1%) is reiterating 2014 revenue guidance of $24.575B, and raising 2014 EPS guidance by a penny to $1.91; that roughly matches a consensus of $24.57B and $1.91.

With Elliott Management circling, the company now plans to buy back $3B worth of shares in 2014, up from a prior $2B. $600M was spent on buybacks in Q2, and $390M in Q1.

Not surprisingly, EMC rejects Elliott's call to divest VMware (VMW +1.8%), and uses its earnings slides (.pdf) to point to synergies yielded by a "federation" strategy that involves holding onto VMware and Pivotal.

Information Storage revenue (67% of total) rose 7% Y/Y in Q2 with the help of new products, a turnaround from Q1's 3% drop. High-end storage was still weak, declining 14% to $1.03B ahead of a VMAX refresh. But unified storage and backup/recovery (VNX, Data Domain) +6% to $1.57B, and emerging storage (flash and object storage, scale-out NAS) +52% to $470M. Other storage -6% to $900M.

RSA Security +6% to $240M, content management +4% to $160M, Pivotal +29% to $54M.

Product revenue only rose 2% Y/Y, while services revenue (more stable) rose 9%. Gross margin fell 50 bps Y/Y to 63.8%, and op. margin 160 bps to 22.6%, thanks partly to healthy increases in R&D and .SG&A spend.

VMware is moving higher, following an initially muted reaction to its Q2 beat and in-line guidance. CLSA has upgraded shares to Buy, citing the strength of new products and the potential for a spinoff.

Q2 results, PR

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Comments (5)
  • Momintn
    , contributor
    Comments (5403) | Send Message
    EMC's forward P/E is 13. I am holding my shares.
    23 Jul 2014, 10:40 AM Reply Like
  • Michael Clark
    , contributor
    Comments (10572) | Send Message
    This share buy-back is a scam, of course. When you can't really grow revenue significantly, and fear a backtracking in revenue growth, take on more debt, buy back shares to retire shares. If you can't grow revenues, reduce shares. This makes it look like your EPS is growing. In truth, your debt is growing; and you are paying a lot of money to buy shares trading at market highs (even in not at EMC highs). Low interest rates fuel this scam. Raise interest rates.
    23 Jul 2014, 11:05 AM Reply Like
  • Ian Goodenough
    , contributor
    Comments (17) | Send Message
    They're producing ~$5 billion in free cash flow annually and the shares trade at a reasonable multiple. I see no issue with the buyback and don't see why they will need to borrow to fund it.
    23 Jul 2014, 11:21 AM Reply Like
  • floraconley
    , contributor
    Comments (7) | Send Message
    How can I tell if they are using free cash flow or creating debt to fund share buy backs? Where in their financial info can I find this? Thanks
    23 Jul 2014, 12:11 PM Reply Like
  • Small Fry
    , contributor
    Comments (373) | Send Message
    Like Apple, EMC does use some of its debt to fund share buybacks but that's only because much of their cash is overseas and they don't want to bring that cash back to the US and pay taxes on it. It's more efficient to borrow at very low rates than use their free cash due to taxes.
    23 Jul 2014, 03:22 PM Reply Like
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