UPDATE 3-EMC reports higher profit, open to VMware spinoff
(Adds CEO interview on VMware stake, analyst comment, stock activity)
By Jim Finkle
BOSTON, July 23 (Reuters) - EMC Corp (EMC.N), the top maker of corporate storage equipment, posted stronger-than-expected quarterly results on Wednesday and opened the door for a spinoff of its stake in VMware Inc (VMW.N), sending its shares up more than 10 percent.
EMC, which also sells business software, nudged up its full-year revenue forecast, but kept its profit outlook intact.
The robust second-quarter results, fueled in part by strong overseas sales, sent EMC shares up about 3 percent, but the stock rose further after Chief Executive Joseph Tucci hinted on a conference call that he might give in to investor demands to spin off the company's 86 percent stake in software maker VMware.
Pacific Growth Equities analyst Kaushik Roy said there was a 75 percent chance that EMC will spin off VMware next year.
In an interview with Reuters, Tucci said a spinoff was possible, but would not happen in 2008.
"That means we're going to optimize this asset," Tucci said. "That doesn't mean you spin it, or you won't spin it."
That appeared to be a change in position from May, when EMC said it had no plans to divest the VMware stake. Shareholder disappointment over those comments contributed to a 33 percent drop in EMC stock since then, even as the company's earnings remained on track.
VMware was last year's hottest technology IPO, but the company has lost much of its shine after results disappointed shareholders amid greater competition and the weak economy. EMC only sold a small stake in the software maker, giving the shares scarcity value.
CURRENCY BENEFIT
EMC's second-quarter net income rose 13 percent to $377.5 million, or 18 cents per share, from $334.4 million, or 16 cents a share, a year earlier. Analysts had expected profit of 17 cents per share, according to Reuters Estimates.
Revenue climbed 18 percent to $3.67 billion, with currency fluctuations contributing 3 percentage points to that growth rate. Wall Street had forecast $3.56 billion.
The results come after International Business Machines Corp (IBM.N), which sells competing storage equipment and software, reported stronger-than-expected sales and earnings last week. IBM said corporations were investing in hardware and software that help expand data centers and cut costs, even in the face of slowing economic growth.
EMC backed its January forecast of full-year profit of 78 cents per share, excluding items. It said 2008 revenue would exceed $15 billion, up from its previous outlook of $15 billion.
EMC's news caused investors in the company to shrug off a disappointing revenue forecast late on Tuesday from VMware. That news caused share-price declines of about 14 percent for VMware and 3 percent for EMC in after-hours trade that day.
In afternoon New York Stock Exchange trade, EMC shares rose $1.27, or 10.2 percent, to $13.73, while VMware fell 6.6 percent to $35.46. (Reporting by Jim Finkle; Editing by Lisa Von Ahn, Gerald E. McCormick, Dave Zimmerman)
