January 25, 2011 / 1:44 PM / 7 years ago

EMC beats Street, shares fall on VMware margins

NEW YORK (Reuters) - Data storage company EMC Corp's EMC.N quarterly results and full-year outlook beat Wall Street forecasts, adding to evidence of a recovery in business technology spending.

The company's shares slid 1 percent, however, on concerns over weak margins at VMware (VMW.N), majority-owned by EMC.

EMC said fourth-quarter revenue rose 19 percent to $4.9 billion, higher than the market's average forecast of $4.8 billion, according to Thomson Reuters I/B/E/S.

The company's quarterly net profit rose to $629 million from $391 million share a year earlier. Excluding items, profit per share was 42 cents, exceeding the Street's average forecast by a penny.

For 2011, the company forecast revenue of $19.6 billion and earnings of $1.46 per share excluding items. Analysts on average expected full-year revenue of $19.0 billion and earnings per share of $1.45.

EMC's customers are starting to upgrade their storage systems due to both the increasing amount of data they handle as well as a recovering economy, analysts said.

"We believe the company's better-than-expected initial guidance range for 2011 on both the top and bottom line is a positive indicator for EMC as well as an improving IT spending environment in the field," FBR Capital Markets analyst Daniel Ives said in a note to clients.

The strong report from the world's biggest maker of corporate data storage equipment comes after strong reports from Intel Corp (INTC.O) and International Business Machines Corp (IBM.N).

EMC shares, however, fell 1 percent in premarket trade to $23.58, and analysts said the impact of VMware's weak margin was a major concern.

VMware on Monday reported solid quarterly results but said it does not expect operating margins to increase this year as it spends money on new hires and international expansion.

"VMware is an issue today," said Avian Securities analyst Matt Bryson. "EMC's numbers are strong. But looking at next year's revenue guidance, it is about 4 pct above where I thought it would be, while earnings is just a penny above expectations. In general, that upside in revenue doesn't seem to be translating to earnings."

Reporting by Ritsuko Ando; Editing by Lisa Von Ahn, Dave Zimmerman

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