EMC Matches Targets

But third-quarter guidance is a shade light.
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Updated from 7:34 a.m. EDT

The strengthening dollar took a bit of the shine off an otherwise robust second-quarter performance by storage giant




EMC matched Wall Street's estimates Thursday with a 19% second-quarter revenue gain, but the company offered third-quarter guidance that falls a bit short of expectations, largely because of changes in foreign-exchange rates.

Although most analysts who follow the company were inclined to give it a pass on the soft guidance, shares were off 37 cents, or 2.6%, to $14.05 in recent trading.

EMC's June quarter, however, was right in line with Wall Street's expectations. The Hopkinton, Mass.-based company earned $293 million, or 12 cents a share, up from the year-ago $193 million, or 8 cents a share. Revenue rose to $2.34 billion from $1.97 billion a year earlier.

Systems revenue grew 15% from a year ago to $1.1 billion, while software license and maintenance revenue rose 23% to $878 million, representing 37% of total revenue. Professional services, systems maintenance, and other services revenue rose 26% year on year to $389 million.

"We're feeling good about the second half of the year," CFO Bill Teuber said in an interview. "We should be stronger in constant currency than we were in the first half." Teuber said the stronger dollar will trim $25 million to $40 million off the top line in the third quarter, "but we expect to make our full-year targets anyway."

He said the company expects to earn 12 cents a share in the third quarter on sales that are essentially flat with the second quarter. Analysts polled by Thomson First Call were looking for a 13-cent-a-share profit on sales of $2.4 billion.

Commenting on the results, Goldman Sachs analyst Laura Conigliaro said, "We would buy EMC even after a quarter that was not enough, given already high expectations. We still view EMC as a strong candidate for upside," she said in a note to clients. Goldman Sachs has an investment banking relationship with EMC.

The company's inventory increased from 50 days to 58 days, and inventory turns (the ratio of annual sales to inventory), which is usually about 7, dropped to 6.3, which would normally be seen as a negative. But Teuber said -- and analysts agreed -- that the build is a direct result of preparations for a major fall product launch and will likely return to normal levels by the fourth quarter. The new product line will be announced Monday.

For the year, EMC forecast earnings of 50 cents to 51 cents a share on 17% revenue growth, which is in line with the Wall Street estimate.