October 22, 2014 / 12:10 PM / 5 years ago

UPDATE 2-EMC cuts profit forecast as bookings fall at VMware unit

(Adds details, background, analyst comment; updates shares)

By Anya George Tharakan

Oct 22 (Reuters) - Data storage equipment maker EMC Corp cut its full-year profit and revenue forecast, hurt by lower bookings at its VMware Inc unit and a strong dollar.

Shares of EMC, which is under pressure from activist investor Paul Singer’s Elliott Management Corp to spin off VMware, fell as much as 4 percent in early trading.

VMware shares declined as much as 9 percent.

The unit, owned 80 percent by EMC, forecast current-quarter revenue largely below analysts’ estimates on Tuesday due to a delay in the closing of a large U.S. government deal and lower bookings in Germany, Russia and Japan.

A surge in the dollar is also hurting EMC, which gets 45 percent of its revenue from international markets.

The U.S. dollar index rose 7.7 percent in the third quarter.

“Although guidance was slightly lower than the Street, we believe investors remain laser-focused on the company’s plans to enhance shareholder value,” FBR Capital Markets analyst Daniel Ives wrote in a note.

Elliott is also pushing EMC to pursue other merger opportunities to maximize long-term value.

EMC has said that it planned to keep the company together.

The company, however, held talks with Hewlett-Packard Co for a merger but no deal materialized, sources told Reuters this month.

“We hope the board and management team at EMC is evaluating the right ownership structure/a potential spin off of VMware as this topic remains at the epicenter of investor frustration and activism around the EMC story,” Ives wrote.

EMC’s so-called “federation” comprises four main businesses - its core data-storage unit, virtualization software unit VMware, enterprise security business RSA and cloud-computing software maker Pivotal.

Each unit has its own chief executive and management and develops its own business strategies and products, which sometimes leads to overlaps and competition between units.

Separately, EMC said on Wednesday that it would buy most of Cisco Systems Inc’s stake in their joint venture, VCE, and merge it into its business.

EMC cut its full-year adjusted profit forecast to $1.90 per share from $1.91 and its revenue forecast slightly to $24.5 billion from $24.58 billion.

Analysts on average were expecting a profit of $1.91 per share and revenue of $24.54 billion, according to Thomson Reuters I/B/E/S.

Net income attributable to EMC shareholders rose slightly to $587 million, or 28 cents per share, in the third quarter ended Sept. 30 from $586 million, or 27 cents per share, a year earlier. (1.usa.gov/1uEavVO)

Excluding items, the company earned 44 cents per share.

Revenue rose 8.8 percent to $6.03 billion.

Analysts on average had expected a profit of 46 cents per share on revenue of $6 billion.

EMC’s shares were up 1.8 percent at $27.70 in noon trading on the New York Stock Exchange, while VMware’s shares were down 4.6 percent at $84.10. (Additional reporting by Supantha Mukherjee in Bangalore; Editing by Kirti Pandey)

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