Updated from 8:10 a.m. ET
No slowdown here.
Tuesday morning reported fourth-quarter earnings above expectations.
The data-storage giant said earnings per share were 25 cents, besting the 23 cents analysts polled by
First Call/Thomson Financial
were expecting, and 47% higher than 17 cents a year ago. Sales, meanwhile, totaled $2.62 billion. That figure is 40% higher than the year-ago figure, and about $60 million above analysts' expectations.
Few firms have found themselves better positioned than EMC to take advantage of the big spending by corporations scrambling to get their tech infrastructure up to New Economy speed. With the Internet age unleashing a torrent of information on the world, demand for the means to store that information has exploded in turn. A series of strong quarterly reports under its belt, EMC has used the enterprise-storage boom to build a reputation as a must-own stock, gaining 200% in the last two years. It's also one of a steadily shrinking number of companies that can credibly claim not to be seeing any slowing in demand for their products.
EMC made that claim once again on the conference call following its earnings report Tuesday. CEO Mike Reuttgers reiterated the company's forecast that 2001 sales would total $12 billion, about $80 million above analysts expectations. He also disputed the increasingly conventional wisdom that 2001 will consist of a sluggish first two quarters saved by a strong second-half rebound. "From the discussions we've had with customers, we do not see a slowdown in the first half for information storage purchases," said Reuttgers.
Reuttgers gave analysts an abbreviated version of the same speech he's been giving for more than a year, arguing that the data-storage boom will continue inexorably. This time around, he cited a
University of California at Berkeley
study surveying the production of information from the beginning of time -- triceratops on a typewriter, presumably -- through 1999. The study's findings: around 12 billion gigabytes of information have been produced so far; the percentage of digital information to total information rose to 95% in 1999 from 5% in 1990; and, most spectacularly, more information will be produced in the next two years than in the prior 40 years.
One sticking point remains: the issue of profit margins. EMC said it expected gross margins to fall in a percentage range between the mid- and high-50s, thus leaving open the possibility of a decline from 2000's 59% gross margin, as competition heats up between EMC and companies like
. Meanwhile, EMC said it expected operating margins for 2001 to be between 23% and 25%.
EMC gave no specific guidance on 2001 earnings, saying only that it "did not intend" to lower estimates. But extrapolating the company's 2001 earnings per share from the information it did provide shows what sort of range investors could be looking at. Assuming a 27% tax rate (the company's guidance) and a replication of the $206 million the company earned on its investments in 2000 (a charitable assumption in the current environment), revenue of $12 billion would yield 2001 earnings per share of around 96 cents, or about 6 cents below current consensus estimates, if operating margins were to fall to the lower end of the range forecast by EMC. But with operating margins at 25% for the year, 2001 earnings would be in the neighborhood of $1.03 a share, a penny above consensus.
For now, with the storage market still booming and EMC still dominant, analysts are optimistic. "There's some conservatism built into this guidance," says
Deutsche Banc. Alex. Brown
analyst Phil Reuppel. Reuppel estimates EMC will earn $1 a share in 2001. "Unless there is a significant competitive issue, there's no reason why they couldn't grow operating margins, or at least maintain them. EMC has been able to execute through thick and thin, so there's certainly reason to hope that those margins could be exceeded." (Deutsche Banc was an underwriter for EMC's spinoff of
The stock market agrees. EMC was lately up $2.25, or 2.9%, to $78.75.