October 22, 2013 / 4:59 PM / in 4 years

EMC cuts full-year forecast due to U.S. government shutdown

(Reuters) - EMC Corp EMC.N, the world’s largest data storage equipment maker, cut its full-year forecast because of the two-week U.S. government shutdown, sending its shares down 4 percent.

EMC, which reported lower-than-expected quarterly results, said the shutdown caused it to miss its revenue estimate by about $120 million, which it did not expect to recover.

“Orders from the U.S. federal government that were expected to close in the last weeks of the quarter did not,” Chief Operating Officer David Goulden said on a conference call.

Revenue from the U.S. government usually accounts for about 10-15 percent of EMC’s total revenue in the third quarter, compared with about 5 percent in the rest of the year, FBR Capital Markets analyst Daniel Ives said.

Chief Executive Joe Tucci said that about 70 percent of EMC’s revenue from the government is based on short-term orders that are completed and billed within the quarter.

This means that revenue foregone in the quarter cannot be made up later.

EMC cut its full-year profit forecast to $1.80 per share from $1.85 and its revenue forecast to $23.25 billion from $23.5 billion.

Analysts expected a profit of $1.86 per share on revenue of $23.44 billion, according to Thomson Reuters I/B/E/S.

EMC said its forecast also took into account corporate cutbacks in IT budgets as well as uncertainty about government spending.

Research firm Gartner Inc (IT.N) cut its 2013 global IT spending growth forecast in July, to 2 percent from 4 percent.

EMC unit VMware Inc (VMW.N) reported a higher-than-expected profit on Monday but said it expected government-related revenue to be flat in the current quarter.

EMC’s chief rival, NetApp Inc (NTAP.O), has also forecast lackluster results for the current quarter, blaming the slowdown in government spending.


Analysts said EMC would benefit from new products and strong licensing growth at VMware.

    EMC and VMware have teamed up in a new venture, Pivotal Inc in a bid to profit from demand for data analytics software.

    EMC also launched its VNX 2 mid-range data storage product.

    “EMC is not going to be as negatively impacted by the federal situation going forward, as the top federal quarter is behind and the federal situation is going to improve,” FBN Securities Shebly Seyrafi told Reuters.

    Seyrafi said he expects EMC’s VNX 2, ViPR software-defined storage, XtremIO flash-based storage and its VMware unit to generate growth in the fourth quarter and 2014.

    VMware indicated that strong licensing revenue growth would continue into next year.

    “(EMC) has a solid opportunity to re-accelerate storage growth given its new VNX product cycle and emerging storage business, which are key ingredients in the company’s recipe for success heading into 2014 and beyond,” Ives said.

    Net income attributable to EMC slid to $586 million, or 27 cents per share, in the third quarter ended September 30. Excluding items, the company earned 40 cents per share, below the average analyst estimate of 45 cents.

    Consolidated revenue rose 5 percent to $5.54 billion, missing the average estimate of $5.8 billion.

    Hopkinton, Massachusetts-based EMC’s shares were down 3.8 percent at $24.28 on the New York Stock Exchange in early afternoon trading on Tuesday.

    Reporting by Soham Chatterjee; Editing by Savio D'Souza and Don Sebastian

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