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EMC Hammered

Profits take a plunge, as competitors chip away at the storage giant's market share

EMC Corp. (NYSE: EMC) today confirmed its earlier forecast of abysmally lower earnings. The key culprit was the sagging economy and cutbacks in information technology spending. But although officials downplayed the issue, rising competition in the high-end storage market from the likes of IBM Corp. (NYSE: IBM) and Hitachi Ltd. (NYSE: HIT; Paris: PHA) also played a role, slashing gross profit margins (see EMC Profits Fall 75%).

For the quarter ending June 30, EMC earned $109 million, matching its earlier lowered guidance of 5 cents a share, on $2 billion in revenues. Prior to EMCs July 6 disclosure, the consensus expectation of analysts was 17 cents a share.

For the quarter a year ago, EMC earned $429 million, or 20 cents a share, on $2.1 billion revenues. Gross profit margins plunged from 58 percent a year ago to 47 percent.

Perhaps most discouraging to the forward-looking financial community was EMC’s inability to predict when business would bounce back. “Q3 looks worse economically than the current quarter,” said CFO Bill Teuber in a Wednesday morning conference call with analysts. “We can’t say anything definitive about revenue or gross margins for Q3.”

There appears to be more than the economy at play in the cloudy forecast. For the past several years, EMC has been the undisputed leader in storage for large corporations. But cracks have been showing through EMC’s armor as IBM and Hitachi are making more noise. Analysts say rising competitive pressure has forced EMC to cut pricing to as low as 4 cents per megabyte on select deals. That compares with first-quarter sales of around 10 cents per megabyte.

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