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

EMC CEO Joe Tucci Tuesday said the company has not 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 are not 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 are not 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 have not played our next round of platform cards. In short, we are comfortable with our competitive positioning."

Tucci said EMC has not 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 is not where customers play around," he said.

As for the midtier competition with HP, Tucci said EMC is not 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, Hpkinton, Mass., posted earnings of $218 million, or 9 cents per share, on a 34 percent 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 percent, 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 percent this year vs. 2003 with storage spending up approximately 7 percent.

For 2005, "We expect more of the same," said Tucci, noting that EMC's information lifecycle 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, said Tucci, adding that is no longer the case.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 is still a healthy balance and they are a great, strong partner for us," said Tucci.

On the services front, EMC services revenue grew 48 percent 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 Systems and VMware software acquisitions, grew 19 percent in the quarter compared with the year-ago period.

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

EMC said software license revenue increased 56 percent 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 percent 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, we are shifting into overdrive," he said.