EMC stands by outlook despite weaker tech spending

Tue Jul 24, 2012 11:35am EDT

Related Topics

(Reuters) - Data storage equipment maker EMC Corp (EMC.N) said it was bracing for weaker tech spending and continued economic weakness in Europe but stood by its full-year profit target after reporting solid second-quarter earnings.

The company said it had lowered its expectations for growth in global spending on information technology to around 3 percent or a bit less as customers delay purchases.

"Previously, we believed that 2012 IT spending growth would be in the higher end of the 3 percent to 4 percent range," Chief Executive Joe Tucci said on a conference call with analysts.

"On the macro front, pretty much everywhere in the world, we are seeing more caution and more scrutiny before any decisions to procure any IT product or service is made," he added.

EMC, the world's biggest maker of corporate data storage equipment, reiterated its previous full-year profit forecast of $1.70 per share, 3 cents below analysts' average forecast. It repeated its revenue outlook of $22 billion, compared with an average estimate of $22.10 billion.

It said it expected free cash flow of $4.9 billion this year and it expects to buy back $700 million of its shares.

Most analysts welcomed the second-quarter results in light of continued economic worries and recent warnings from other tech companies.

"In light of macro uncertainty, Europe headwinds, and soft recent results out of the company's main competitor (NetApp), we would characterize these results as very respectable and a positive sign that EMC's business is holding up well in the field," Daniel Ives, an analyst at FBR Capital Markets, said in a note.

Shebly Seyrafi, an analyst at FBN Securities, cautioned that Europe was a key risk for EMC.

"We believe that sales in EMEA (Europe, Middle East, Africa) will continue to weaken in the current quarter," he said, adding that without the weakness in Europe, EMC likely would have guided for 2012 revenue of around $22.3 billion.

EMC said the third quarter was typically the weakest quarter in Europe and that "economic headwinds in Europe are going to remain choppy at best, and we expect this to continue for a while".

EMC last week announced preliminary second-quarter results that were largely in line with expectations amid a management reshuffle.

Profit, excluding one-time items, was 39 cents per share, below the average analyst forecast of 40 cents, according to Thomson Reuters I/B/E/S. Revenue rose 10 percent to $5.31 billion, beating the average forecast of $5.29 billion.

EMC replaced the head of its VMware Inc (VMW.N) software unit, Paul Maritz, with the chief operating officer of EMC Information Infrastructure Products, Pat Gelsinger. It also promoted Chief Financial Officer David Goulden to president and chief operating officer.

EMC shares rose 1.6 percent to $25.20 in late-morning trading.

(Reporting by Supantha Mukherjee in Bangalore and Nicola Leske in New York; Editing by Maureen Bavdek and John Wallace)

FILED UNDER: