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EMC Beats as IT Spending Improves

EMC beats Wall Street's third-quarter estimates as tech spending starts its rebound.

Updated from 8:27 a.m. EDT



) --



beat analysts' estimates in its

third-quarter results

, buoyed by cost-cutting efforts and an a more confident IT

spending climate


The storage maker reported revenue of $3.52 billion, down 5% on the same period last year, but above analysts' projection of $3.45 billion. EMC's sales, however, increased 8% sequentially, ahead of the company's own estimate of 4% to 5% growth.

Excluding items, EMC earned 23 cents a share on net income of $480.3 million, down from 25 cents a share and net income of $528 million in the prior year's quarter. Analysts surveyed by Thomson Reuters had expected earnings of 21 cents a share.

"Customers are signaling more comfort spending their IT budgets, which gives EMC confidence in our ability to perform well and achieve our full-year 2009 targets," said EMC CEO Joe Tucci, in a statement. The company also made further progress improving its cost structure, he added.

EMC's cost-reduction efforts are expected to generate savings of $500 million in 2010 compared to 2008, according to the company's statement.

Investors were nonetheless underwhelmed by EMC's numbers. The company's shares fell 31 cents, or 1.77%, to $17.20 shortly after market open as the Nasdaq dipped 0.61%.

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On a GAAP basis, EMC earned 14 cents a share on net income of $298.2 million, down from 20 cents a share and $411 million in the prior year's quarter. Tucci acknowledged that his firm is operating in a still challenging economic climate, but struck a confident tone.

"We are strategically aligned with the major technology shifts and well positioned to play a pivotal role in the IT industry for the next decade," he said, in his statement.

The firm's earnings beat was not completely out of the blue, particularly after its


(VMW) - Get VMware, Inc. Report

subsidiary beat Wall Street's estimates in its own

third-quarter results

, released Wednesday after market close. VMware, which is majority-owned by EMC, contributed $489 million to the storage specialist's sales, up from $455 million in the prior quarter.

The storage giant also exited the third quarter with cash and investments of $8.4 billion.

Tucci may have more than $8 billion burning a hole in his pocket, but the EMC CEO reiterated his preference for smaller, more manageable acquisitions.

"Our stated preference is to continue our 'string of pearls' approach," he said, in response to an analyst's question during a conference call early Thursday. "

But we don't want to take anything off the table that will benefit our shareholders."

EMC, which competes with


(HPQ) - Get HP Inc. Report



(IBM) - Get International Business Machines Corporation Report

, also issued bullish guidance for the rest of its fiscal year.

During the fourth quarter, EMC expects revenue of $4 billion, just above Wall Street's estimate of $3.97 billion. Excluding items, the firm predicts earnings of 30 cents a share, also north of analysts' estimate of 29 cents a share.

For fiscal 2009, EMC projects sales of $13.9 billion. Analysts surveyed by Thomson Reuters had expected revenue of $13.83 billion.

During the conference call, Tucci explained that EMC benefited from the U.S. government's late-September "budget flush," but added that demand was healthy across the board. "We had a lot of strength in federal

spending, we did better than you might expect in financial services, and the oil and gas sectors continue to be strong," he said.

The CEO predicted a "slow but steady" recovery in 2010. "We expect spending to return to growth, but not at the levels seen between 2004 and 2007," he said, adding that demand for storage, virtualization and backup will outpace other technologies.

Tucci also faced questions about EMC's recent acquisition of

Data Domain


, which now forms part of the firm's billion-dollar Backup Recovery Services division. The CEO said that BRS produced good results during the third quarter, and EMC CFO David Goulden explained that Data Domain's revenue has grown 40% this year.

-- Reported by James Rogers in New York