Updated from 9:33 a.m. EDTSAN FRANCISCO -- Shares of data storage firm EMC ( EMC) climbed after the company said third-quarter revenue benefited from continued growth -- albeit at a modest pace -- in sales to financial services firms. The company's comments bolstered views that EMC's core data storage business remains healthy, and lent credibility to Chief Executive Joseph Tucci's view that the company will "definitely exceed" its full-year financial goals. In recent trading on Thursday, EMC shares were up $1.71, or 7.6%, to $24.24, despite declines in broad market indexes. On a conference call with analysts, Tucci said orders from financial services firms grew modestly despite "an air of caution." The company doesn't break out the amount that different industry segments contribute to its sales, but Toni Sacconaghi, an analyst with Sanford C. Bernstein, estimates that financial services firms account for roughly 10% of EMC's business. Tech purchases from financial services firms have appeared particularly vulnerable to cutbacks because of mounting losses from mortgage-related investments. IBM ( IBM), for example, cited credit and mortgage market turmoil as a key factor behind a 13% fall in third-quarter hardware sales. EMC said that its sales momentum stems from efforts to consolidate storage equipment, strengthen backup and recovery capabilities and comply with regulations such as Sarbanes-Oxley that set high standards for data storage and archiving. With these tailwinds at its back, Tucci now expects that EMC will top its full-year earnings target of 64 cents a share on $12.7 billion in revenue.
Net income grew 74% to $493 million, or 23 cents a share, in the latest quarter, up from $284 million, or 13 cents a share, a year earlier. That gain includes the sales of a stake in EMC's subsidiary, VMware ( VMW), to Cisco Systems ( CSCO). Excluding that transaction and other one-time gains, EMC earned 17 cents a share, matching analysts' consensus forecast, according to Thomson Financial. Total revenue rose 17% to $3.3 billion, edging past analysts' average estimate. EMC's storage business, which excludes VMware, generated $2.6 billion in sales, an 8% increase from the same period last year. Sales in North America grew 15% and accounted for about 60% of total revenue. Demand from Europe and Asia largely accounted for a 21% jump in sales outside of North America. In EMC's core data storage appliance business, sales grew at a 9% pace year-to-date, vs. the company's estimate of 6% to 7% for the total market. In an interview, Chief Financial Officer David Goulden said EMC is confident that it's taking market share from competitors. The third quarter was particularly significant for EMC because it gave investors a sense of how well the company's new products are selling. Over the summer, the company updated its storage gear for large businesses as well as for small and medium-sized businesses. Goulden said that strong sales of the company's new mid-range and entry-level hardware, as well as its latest software products, helped offset flat sales of its high-end gear. Gross margins for the storage business increased to 53.1% from 52.7% in the second quarter despite a decrease in price charged per megabyte of storage capacity. Goulden attributed this to more efficient design and manufacturing processes, and a greater contribution to sales from high-margin software. EMC also doubled its stock buyback plans to $2 billion, using a dividend from VMware and proceeds from the Cisco transaction.