EMC's Tucci: New IBM, HP Products Not 'Game-Changers' - InformationWeek

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EMC's Tucci: New IBM, HP Products Not 'Game-Changers'

The storage leader reports healthy profits for its third quarter.

EMC CEO Joe Tucci Tuesday said the company hasn't felt the heat from the recent storage-platform product introductions by rivals IBM and Hewlett-Packard.

After EMC posted quarterly results in line with Wall Street expectations, Tucci said the recent product refreshes from the competition aren't taking a toll on EMC. "These products are pretty much as we expected and offer logical extensions in terms of performance and capacity with respect to their product families," said a confident Tucci. "They aren't game-changing products.

"We have a healthy lead in the all-important area of functionality," Tucci added. "The best news is that EMC has a faster cycle of innovation. We now know what our competitors have. We still haven't played our next round of platform cards. In short, we're comfortable with our competitive positioning."

Tucci said EMC hasn't seen a longer sales cycle in the wake of IBM's high-end storage-product-line announcements. He expects the IBM introductions to have no impact on EMC in the fourth quarter. "The high end isn't where customers play around," he said.

As for the midtier competition with HP, Tucci said EMC isn't seeing any significant impact from HP's recent move to hire more storage salespeople. Tucci maintained that EMC is gaining share from HP. "We're doing OK [in the midrange]," Tucci said, adding that besides HP, EMC competes heavily with IBM and Network Appliance in that segment.

For the third quarter ended Sept. 30, EMC posted earnings of $218 million, or 9 cents per share, on a 34% increase in sales to $2.03 billion. The Wall Street consensus was 9 cents per share on sales of $2.01 billion, according to a survey of analysts by Thomson First Call. In early trading, EMC shares were up 30 cents, or 2%, to $12.45.

For the fourth quarter, EMC said it expects to earn 11 cents to 12 cents per share on sales of $2.23 billion to $2.27 billion. That compares with earnings of 9 cents per share on sales of $1.86 billion in the same quarter one year ago.

As for the overall IT spending climate, Tucci said he sees "slow and steady" improvement in IT spending. He said he expects IT spending to be up 4% this year versus 2003, with storage spending up approximately 7%.

For 2005, "We expect more of the same," said Tucci, noting that EMC's information life-cycle-management strategy is paying off. He said EMC continues to plan to grow at least twice the rate of the market.

That said, Tucci said customers are no longer purchasing software licenses up front. "They want to pay as they go or pay as they grow," he said. "This phenomenon is now hitting software hard." In the past, clients deploying 3,000 seats for a software product would pay for the seats up front, Tucci said.

Dell, which manufactures and sells EMC's Clariion product line, represents a little less than one-third of EMC's Clariion business in terms of sales, he said. "We think it's still a healthy balance and they're a great, strong partner for us," said Tucci.

On the services front, EMC services revenue grew 48% compared with the year-ago quarter, due in part to the impact of software-company acquisitions and increased software-maintenance revenue.

Core EMC revenue, which excludes revenue related to EMC's Documentum, Legato, and VMware software acquisitions, grew 19% in the quarter compared with the year-ago period.

EMC systems revenue grew 18% compared with a year ago. In the third quarter, EMC Clariion, Centera, and NAS businesses collectively grew by more than 50%.

EMC said software-license revenue increased 56% compared with the same period a year ago, driven by the Documentum, Legato, and VMware acquisitions and double-digit growth from sales of EMC's core storage software.

The newly formed EMC Software Group posted overall sales of $351 million in the quarter. The major components of EMC Software Group, including core EMC multiplatform software, Documentum, and Legato, each had double-digit revenue growth in the third quarter over the year-ago period.

VMware, an EMC subsidiary, reported sales of $61 million in the quarter, an increase of more than 200% over the year-ago quarter.

Tucci said that EMC continues to "gain share in virtually every segment in which we play" and will continue to drive forward with its information life-cycle-management [ILM] storage strategy. "While competitors are just starting to talk about ILM," he said, "we're shifting into overdrive."

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