EMC ( EMC) beat Wall Street's top- and bottom-line expectations for its fourth quarter, but like Apple ( APPL) and IBM ( IBM) before it, got a mixed reception from technology-shy investors. Shares slipped after the early-morning announcement, but recovered and in recent trading on Tuesday were up 13 cents, or nearly 1%, to $13.60. Strong quarterly results followed by so-so guidance has been something of a trend this earnings season, and EMC was no exception. The company's guidance for 2007 was barely above First Call estimates and EMC declined to give a quarterly projection for the first time in years. The company earned $389 million, or 18 cents a share, during the December quarter, compared with $148 million, or 6 cents a share a year ago. Revenue climbed 19% to a record $3.215 billion. Excluding a restructuring charge of 6 cents a share and non-recurring tax benefits of 7 cents a share, the Hopkinton, Mass., data-storage company earned 17 cents a share, 2 cents higher than the company had forecast in October, and a penny better than the estimates of analysts polled by Thomson First Call. Analysts were looking for revenue of $3.169 billion. CEO Joe Tucci indicated some disappointment with his company's uneven performance during 2006 -- EMC posted two weak quarters early in the year, followed by a strong finish -- but said "2007 will be EMC's year." Tucci said he expects overall IT spending to grow by about 6% in 2007, well above the 2.8% projected by market research firm Gartner last month.
Sales were strong across the company's varied lines of business during the fourth quarter. Systems revenue was up 12%; software license and maintenance revenue rose 27%; and professional services and systems maintenance revenue jumped 20% year over year. The strength in software reflects the company's efforts at diversification beyond its core data-storage business. VMware, an EMC subsidiary, grew 101% year-over-year to $232 million, while RSA Security, acquired last year for $2.1 billion, contributed $114 million in sales. Tucci said the chances of another major acquisition are very small in the near term, although the company will continue to make smaller "tuck-in" buys. For the full year, EMC earned $1.22 billion, or 54 cents a share, compared with $1.13 billion, or 47 cents a share, in 2005. Revenue increased to $11.16 billion from $9.66 billion. EMC's policy on guidance has varied, but for the last four years the company has given quarterly and annual forecasts. For now, though, EMC will give annual but not quarterly guidance. In an interview, co-Chairman Bill Teuber said, "It's something of a trend. You see other companies like Motorola ( MOT) and DELL ( DELL) guiding that way." Teuber said that as companies mature, annual forecasting gives a truer picture of performance and he pledged to continue to give investors detailed accounts of quarterly performance.
Although some analysts view such moves as red flags, the immediate reaction to the shift was fairly positive. "Although this move may create some near-term haziness, we understand management's attempt to get investors to focus on the longer-term story," said Daniel J. Renouard, an analyst with Baird, which is seeking investment banking business with EMC. J.W. Seligman analyst Sushil Wagli said the change was not worrisome, but regarding the company's results, said, "I am concerned that operating expenses went up, and I would like to see a higher level of buybacks." Last year, the company repurchased about $3.8 billion in shares. The current authorization for this year is $1 billion, and EMC has indicated it may go higher, but has not set a level. Tucci said he expects 2007 revenue to grow by 14% to "at least" $12.7 billion with earnings of "at least" 64 cents a share. Analysts were projecting sales of $12.6 billion and a profit of 63 cents a share.