NEW YORK (TheStreet) -- Weak IT spending continues to be the major inhibitor for many tech companies, including EMC (EMC), which are looking to demonstrate growth. Missing on earnings has been the end result.But the market distributes the punishment evenly and seldom discriminates or cares for the reasons. The challenge for investors is trying to figure out which companies are better positioned to capitalize when IT spending resumes. Although its recent earnings would suggest otherwise, I believe EMC deserves consideration.
HeadwindsFor the period ending in September, EMC reported net income of $626.3 million, or 28 cents per share, on revenues of $5.28 billion. Both EPS and revenue climbed 3% and 6% year over year, respectively. However, both missed analysts' estimates of 42 cents per share on revenue of $5.46 billion, according to FactSet. Even though this is not a company that misses very often, this quarter's miss was not a surprise. Clearly, it is not immune to the same struggles of weak spending that have affected other tech titans including IBM ( IBM), Microsoft ( MSFT) and Cisco ( CSCO). Nonetheless, the company seems to doing pretty well in its core operations as evident by the growth of 3% and 2% in its storage and network storage segments. Even more impressive was the 5% growth that EMC's high-end storage business produced. But as tends to be the case during tough competitive environments, EMC missed estimates on gross margins as a result of its somewhat lethargic pace in revenue. If there was one bright side during the quarter, it was with virtualization giant VMware ( VMW), which is majority-owned by EMC. VMware reported numbers that topped analysts' estimates as the company continues to grow despite and acquire business despite the economic slowdown. VMware saw 20% revenue growth as sales reached $1.13 billion and reported net income of 70 cents per share, topping estimates of 63 cents.
Moving ForwardEMC benefited greatly from the VMware's performance as the latter makes up 20% of the former's reported revenue. But will this trend continue and will VMware have to continue to exceed expectations to carry EMC? David Goulden, president and COO said:
"For the third quarter, EMC's business continued to grow faster than overall (technology) spending growth and we gained market share in what turned out to be a more cautionary environment than we expected heading into the quarter"This statement seems to support the company's weaker-than-expected guidance. EMC says it expects full-year earnings of $1.24 to $1.26 per share with adjusted earnings coming in the range of $1.68 to $1.70 per share, slightly below estimates of $1.72. Likewise, the company anticipates revenue of $21.60 billion to $21.75 billion, below analyst' estimates of $22.03 billion. There are a couple of ways to look at this report. The first and obvious way is that it could have been much worst. Even though the company missed estimates, the fact that it continues to grow sales (albeit slower than usual) is a good sign. This also indicates the company remains a dominant power within the sector and is gaining market share on rivals such as NetApp ( NTAP) and Hewlett-Packard ( HPQ).