Q3 2011 Earnings Call

October 18, 2011 8:30 am ET


Joseph M. Tucci - Chairman, Chief Executive Officer, President, Member of Mergers & Acquisitions Committee and Member of Finance Committee

David I. Goulden - Chief Financial Officer and Executive Vice President

Tony Takazawa - VP


Benjamin A. Reitzes - Barclays Capital, Research Division

Richard Gardner - Citigroup Inc, Research Division

Louis R. Miscioscia - Collins Stewart LLC, Research Division

Katy Huberty - Morgan Stanley, Research Division

Brian Marshall - ISI Group Inc., Research Division

A.M. Sacconaghi - Sanford C. Bernstein & Co., LLC., Research Division

Amit Daryanani - RBC Capital Markets, LLC, Research Division

Ittai Kidron - Oppenheimer & Co. Inc., Research Division

Maynard J. Um - UBS Investment Bank, Research Division

Deepak Sitaraman - Crédit Suisse AG, Research Division

Scott D. Craig - BofA Merrill Lynch, Research Division

Aaron C. Rakers - Stifel, Nicolaus & Co., Inc., Research Division

Glenn Hanus - Needham & Company, LLC, Research Division

Alex Kurtz - Sterne Agee & Leach Inc., Research Division



Good morning, and welcome to the EMC Third Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. If you have any objections, you may disconnect at this time. I would like to introduce your host, Mr. Tony Takazawa, VP, Global Investor Relations of EMC. Sir, you may begin.

Tony Takazawa

Thank you. Good morning. Welcome to EMC's call to discuss our financial results for the third quarter of 2011. Today, we are joined by EMC Chairman and CEO, Joe Tucci; and David Goulden, EMC Executive Vice President and CFO. David will provide a few comments about the results that we released this morning. He will highlight some of EMC's activities this quarter and discuss our outlook for the rest of 2011. Joe will then spend some time discussing his view of what is happening in the market, EMC's execution of the strategy, and how EMC is positioned to help customers on the journey to the cloud and in their efforts to handle the growth of Big Data. After the prepared remarks, we will then open up the lines to take your questions. I would like to point out that we will be referring to non-GAAP numbers in today's presentation unless otherwise indicated. The reconciliation of our non-GAAP comments to our GAAP results can be found in the disclosure today, in our press release, supplemental schedules and the slides that accompany our presentation. All these are available for download within the Investor Relations section of emc.com. As always, we have provided detailed financial tables in our news release and on our corporate website. These schedules are quite important in understanding our results, so we do encourage you to take a look at them. The call this morning will contain forward-looking statements and information concerning factors that could cause actual results to differ can be found in EMC's filings with the U.S. Securities and Exchange Commission. And lastly, I will note that an archive of today's presentation will be available following the call.

With that, it is now my pleasure to introduce David Goulden. David?

David I. Goulden

Thanks, Tony. Good morning, and thank you for joining us today. I'm pleased to report another quarter of excellent results. We achieved third quarter revenue growth of 18% and grew non-GAAP EPS by 23%. We again improved both non-GAAP gross margin and non-GAAP operating margin both sequentially and year-on-year, and we grew free cash flow by more than 25% on a trailing 12-month basis. Our strong Q3 results underscore that our strategy continues to serve us well. Our sharp focus on key areas of opportunity within cloud and Big Data is propelling ongoing momentum. Our broad portfolio of differentiated solutions within these secular trends is resonating with customers, and our disciplined operational execution and control are driving our success. The combination of all 3 of these has driven our results over the past several quarters, but I'd like to take a moment to focus upon the power of our portfolio.

We achieved $4.98 billion of revenue this quarter, a record amount for any quarter in our history because the combination of our storage, virtualization and security offerings is compelling. Our results stem from having market-leading products and services in each of these high-priority areas of IT spend and also by leveraging capabilities across our lines of business. For example, we developed our storage solutions with an eye towards security and virtualization, and customers rely upon our expertise in these areas as they decide where to deploy their IT dollars.

In any business environment, customers want to make their IT operations more efficient and more agile. Having a partner who can get them there from start to finish is critical, and this is why we win. This advantage was clearly demonstrated by our Information Storage results in Q3 where revenue grew 16% year-on-year to $3.7 billion, driven by product revenue growth of 28% in the mid-tier.

Our storage portfolio has been taking share in both the mid-tier and the high end because we provide best-of-breed products which address customers specific use cases and uniquely enable them to manage massively expanding data volumes. Our high-end product revenue grew 7% over last year's Q3, which we believe is faster than the current growth rate for this segment of the markets.

Customers with mission-critical data sets needing the very best reliability, availability and scalability trust VMAX. While customers have traditionally purchased our high-end storage to handle their biggest and most important business applications and databases, they're increasingly using VMAX to meet additional needs. Its powerful scale architecture is ideal for emerging use cases such as service providers using it for customer facing workloads. And with the combination of FAST VP, Flash and large data drives, VMAX can automatically tier data across various drive types. This capability lets customers store more data types on their SIEM; data in some cases used to relegate the Tier 2 vendors and lower the total cost of ownership. As a result, we win against high-end and Tier-2 vendors alike with VMAX's unique scale-out and other tiering solution. We had a great example of this in Q3 at a global pharmaceutical company where we displaced 1.5 petabytes of Tier 2 storage because VMAX is powerful, trusted and smart. The resilience and sheer horsepower of the VMAX architecture was far superior for supporting this customers database application. Moreover VMAX's tiering capabilities enable them to use tier drives and get better performance at a lower price. The introduction of FAST and Flash drives creates a value proposition that is unmatched and is a key reason why we continue to be the leader in the high end.

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