EMC Corp. EMC reported first-quarter 2015 results, wherein adjusted earnings (including stock-based compensation expense but excluding other items) of 22 cents per share missed the Zacks Consensus Estimate of 25 cents and declined from the year-ago figure of 27 cents.
Quarter Details
Quarterly revenues climbed 2.4% year over year to $5,613 million but lagged the Zacks Consensus Estimate of $5,739 million. Product sales decreased 3.4% year over year, while services increased 9.6% from the year-ago quarter.
EMC Information Infrastructure segment revenues dipped 0.7% year over year to $4,049 million. RSA increased 1.6%, while and Information Storage revenues decreased 0.5% year over year. In addition, Enterprise Content Division decreased 10% year over year.
VMware VMW Virtual Infrastructure continued to impress with revenue growth of 11.6% year over year to $1.3 billion. Pivotal reported revenues of $54 million as against $49 million in the year-ago quarter.
On a geographical basis, revenues from North America increased 5% year over year. Revenues from Europe, Middle East and Africa region dipped 2% year over year. Revenues from the Latin America region grew 8% year over year. Revenues from Asia Pacific and Japan grew 1% on a year-over-year basis.
Gross margin decreased 150 basis points (bps) to 61.3%. Research & development expenses as a percentage of revenues increased 70 bps year over year. Selling, general & administrative expense increased 250 bps on a year-over-year basis.
As of Mar 31, 2015, cash and cash equivalents including short-term investments were $6.5 billion compared with $8.3 billion at the end of Dec 31, 2014. In the first quarter, EMC generated $1.08 billion in cash flow from operations compared with $1.34 billion in the prior year.
Guidance
EMC forecasts revenues of $25.7 billion for 2015, down from the previous forecast of $26.1 billion. Non-GAAP earnings per share are expected to be $1.91, down from $1.98 expected previously. EMC maintained shares repurchase for 2015 at $3 billion.
Our Take
We believe that EMC is well positioned to benefit from incremental data center hardware spending over the long run. EMC’s vast product portfolio, which has products suitable for any kind of budget, will boost its market share. Additionally, aggressive share repurchase will drive earnings.
However, sluggish IT spending outlook will continue to keep margins under pressure in the near term. Moreover, EMC’s high-end storage systems are facing increasing competition from flash-driven storage technology providers like SanDisk SNDK and Western Digital WDC. This will continue to hurt top-line growth in the near term.
Currently, EMC has a Zacks Rank #3 (Hold).
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