Inventory problems hit EMC profits

17 Jul 2006

For the second time this year enterprise storage giant EMC has been forced to revise its revenue outlook. The company had originally forecast year-end revenues of US$11.3bn, which were then revised down to US$11.1bn and on Friday when the company unveiled its second quarter results, revised again to US$10.8bn.

The company, which employs 1,400 people in Ovens in Cork, changed its outlook as it emerged that inventory problems associated with unexpectedly high demand for its Symmetrix DMX-3 family of storage products meant the company couldn’t keep up. The news sent EMC’s shares tumbling 3.7pc on Friday.

EMC’s second net income fell to US$279.1m, despite revenues rising 10pc to US$2.57bn.

EMC CEO Joe Tucci said that the company was buoyed up by a strong performance by its independent subsidiary VMWare.

Admitting inventory problems, Tucci said: “While our execution was not up to our own high standards, our business and customer demand for our products and solutions remain strong.

“The compelling evidence is the 14pc year-over-year growth in new bookings, which speaks to the broad customer endorsement of EMC’s information lifecycle management strategy and the great value customers see in our unique technology.

“We know what we need to do to sharpen our execution going forward and will focus our efforts on both EMC’s short-term performance and our company’s long-term growth and opportunity.”

He added: “VMware had a record quarter, our content management software business again delivered very strong double-digit growth, and license revenues from EMC Smarts software nearly doubled. Our strategy continues to be validated by the performance of our newer software businesses, which are driven by the technology and people that have joined EMC through acquisition.”

Overall for EMC systems revenue in the second quarter was US$1.15bn, an 8pc increase over the year-ago quarter. Software license and maintenance revenue grew 14pc to US$997m. Professional services, systems maintenance and other services revenue grew 9pc year-over-year to US$424m.

EMC completed the second quarter with $6.3 billion in cash and investments.

By John Kennedy