EMC Grabs Hatchet

Plans to dump 4 percent of workforce, and no more major acquisitions for now

October 18, 2006

4 Min Read
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EMC Corp. (NYSE: EMC) will cut around 1,250 jobs by the end of 2007 and wind down its three-year-old strategy of growth by acquisition. (See EMC Reports Earnings.)

Although EMC's financial results last quarter improved over the two previous lackluster quarters, CEO Joe Tucci spent most of today's earnings conference call discussing the company's overall strategy. (See Tucci: EMC's Problems 'Self-Induced'.)

Tucci sounded like he still needed to convince investors and customers of the wisdom of recent deals, especially the $2.1 billion pickup of RSA Security in June. (See EMC Secures RSA for $2.1B and Did EMC Overpay?.) EMC was criticized at the time for overpaying for technology outside of its core product area.

"We have replaced storage as the core of our universe with information," Tucci said today, adding EMC's focus is now on "information infrastructure." That includes storage, data protection, and security.

Tucci says EMC now has the pieces it needs for that strategy after spending more than $7 billion to acquire 21 companies since it picked up Legato three years ago. EMC has grown from 17,500 employees to more than 31,000 over that time, he added. Now he will reduce that number by about 4 percent."To make everything happen was expensive," he says. "It's important we get our efficiencies in line."

Although EMC's revenue rose 19 percent from last year, its income fell from $422 million a year ago to $284 million last quarter. EMC blamed the drop in revenue on the loss of a tax-related benefit last year and costs related to stock option expense last quarter.

Tucci says the layoffs are a result of the acquisitions leaving EMC with "a lot of redundancies" among personnel, especially management. He hinted that layoffs will leave the sales, support, and development teams intact and focus on managers. He also says server virtualization subsidiary VMware will not be affected by the cuts.

After a series of acquisitions, Tucci says, "you end up with a lot of vice presidents, a lot of senior vice presidents. One area I know we have too much of is management. We want to increase the number of people calling on customers."

When asked when EMC will cut back on acquisitions, Tucci replied, "I think you're going to see that now. We have the vast majority of the pieces. We have all the major categories we want. Will we add things like network intelligence going forward? Absolutely. But we're going to concentrate on organic growth and efficiencies."This is the second layoff for EMC this year. It announced a layoff of 1,000 in January. (See EMC Brags on Revs, Plans Cuts.) A company spokesman today said the earlier layoff has been completed and was separate from today's announcement.

Tucci today again defended the RSA deal, saying it gives EMC necessary encryption, identity management, and key management technologies. He said the more recent and smaller pickup of Network Intelligence adds security compliance. (See EMC Pockets Network Intelligence.)

According to Tucci, security technologies such as encryption will eventually be integrated into storage and network switches as well as standalone appliances, but did not give a timeline for when that would happen.

Not counting RSA products, EMC reported revenue of $2.78 billion for the quarter, up 8 percent from last quarter and 17 percent from last year. Its high-end Symmetrix SAN systems jumped to $764 million for the quarter, up 21 percent from last year and 13 percent from last quarter. Tucci last quarter blamed poor Symmetix sales on misjudged demand by management that prevented EMC from filling orders.

EMC's midrange Clariion systems also jumped significantly, growing 18 percent year over year and 12.4 percent sequentially to $502 million.On the software front, storage management revenue of $165.5 million was up 17 percent year over year while backup and archiving software revenue of $52 million grew less than 3 percent from last year. VMware revenue hit $188.5 million, up 86 percent from last year.

"Overall, our quarter was quite healthy," Tucci says. "We didn't like to use excuses, but we gave you reasons for what happened [last quarter] and we corrected them."

The layoffs and revenue rebound failed to impress investors. EMC's share price was down 4.69 percent to $12.29 by late morning.

Dave Raffo, News Editor, Byte and Switch

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