EMC Raises Forecast as Storage Helps Meet Estimates

EMC Corp. (EMC), the maker of storage computers that is fending off a challenge by an activist investor to break itself up, boosted its full-year profit forecast after second-quarter earnings met analysts’ estimates.

Profit excluding some costs was 43 cents a share, the Hopkinton, Massachusetts-based company said in a statement today. That matched the average analysts’ estimate, according to data compiled by Bloomberg. EMC boosted its full-year earnings-per-share forecast by 1 cent.

EMC is selling more storage machines as companies move workloads to Internet-based cloud services and is also benefiting from its majority stake in virtualization-software maker VMware Inc. (VMW) The company is also reaping the rewards from newly released mid-price offerings and some of its newer technologies for housing data, said Abhey Lamba, an analyst at Mizuho Securities USA Inc., who has the equivalent of a hold rating on the stock.

“VMware helps them and it seems like they are doing fairly well in newer products because the numbers for emerging storage are good,” he said. “But the problem is it’s a small part of overall numbers.”

At the same time, EMC is doing a better job controlling costs, Lamba said.

EMC’s shares rose less than 1 percent to $28.75 at the close in New York, leaving them up 14 percent this year.

Sales rose to $5.88 billion, compared with analysts’ average prediction of $5.84 billion.

Activist Push

The company forecast earnings of $1.91 a share on sales of $24.6 billion for the full year, in line with the average estimates of analysts polled by Bloomberg.

VMware yesterday posted second-quarter sales and profit that topped analysts’ estimates. Sales climbed to $1.46 billion from $1.24 billion a year earlier, while profit excluding certain items was 81 cents a share. Analysts had projected profit of 79 cents and sales of $1.44 billion, according to the average of estimates compiled by Bloomberg.

Activist investor Elliott Management Corp., which has amassed a stake of more than $1 billion in EMC, wants to push the company to spin off VMware. Elliott wants EMC to separate from its publicly traded software company VMware and pursue strategic buyers for the remainder, a person with knowledge of the plans has said. Elliott has held talks with potential buyers of EMC without VMware for several months, and will meet with EMC management next week, the person has said.

Elliott Meeting

EMC Chief Executive Officer Joseph Tucci said during an earnings conference call today that he has agreed to meet with Elliott for the first time.

“We have a great collective set,” he said during the call. “To me, splitting them up, spinning out one of your most strategic assets, I don’t know another tech company that’s done that and been successful.”

EMC plans to improve strategic and operational alignment with VMware, including actual unannounced products, Tucci said.

Sales growth has slowed at EMC, and its shares lagged behind the Standard & Poor’s 500 Index in the year through July 18, gaining 5.7 percent compared with the benchmark’s 17 percent rise. The company has struggled to revive growth as corporations and governments curb purchases of high-end storage computers, choosing cheaper software- and flash-memory-based systems instead.

“A lot of these new flash companies are making a lot of noise, but I’ll make a little bit of noise right now,” Tucci said on the call. “They’ve got the wrong architecture -- if you’re going to play in the future and you don’t scale out, you’re going to lose.”

To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net Reed Stevenson

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