EMC’s Stock Climbs as Forecast Amounts to ‘Small Rain Storm’

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EMC Corp. Chief Executive Officer Joe Tucci
EMC Corp. has provided no details on its strategic plans or on succession planning for Chief Executive Officer Joe Tucci, who is still at the helm even though the company had said would step down by February. Photographer: David Paul Morris/Bloomberg

EMC Corp.’s stock rose after the computer-storage company attributed a weaker forecast as much to currency shifts as to underlying demand.

“The street was widely expecting a soft and messy quarter, it was baked into shares,” said Daniel Ives, an analyst at FBR & Co. “The street was expected a hurricane regarding the forecast and instead got a small rain storm, not as bad as feared.”

Ives, who has an outperform rating on the stock, also cited the better than expected results reported Tuesday by VMware Inc., which is majority owned by EMC.

EMC’s first-quarter profit fell short of analysts’ estimates. Earnings excluding certain costs were 31 cents a share, the Hopkinton, Massachusetts-based company said Wednesday in a statement. Revenue rose 2.4 percent to $5.6 billion. Analysts on average had projected profit of 36 cents a share on sales of $5.73 billion, according to data compiled by Bloomberg.

The company said earnings for the year would be $1.91 a share, excluding certain costs, on sales of $25.7 billion. That compared with an average profit estimate of $1.97 a share and revenue of $25.9 billion. EMC in a call with analysts attributed the reduced forecast to currency exchange rates.

The shares rose 3.1 percent to close at $27.13 in New York, leaving the stock down 8.8 percent this year.

Succession Plan

EMC’s shares have declined this year as the company has failed to adequately address investor questions about strategy and a succession plan for Chief Executive Officer Joe Tucci. Sanford C. Bernstein & Co. last week upgraded its rating on the stock, saying EMC had been beaten down too far.

Still, results fell short. The company on Wednesday blamed the sales shortfall on its storage business.

“We didn’t execute as crisply as we normally do,” Tucci said on a call with investors. He also cited “negative geopolitical effects in Russia and China.” Tucci said the company met its own profit projections.

EMC is contending with weak demand for its most expensive storage equipment, and is trying to compensate by focusing on new products and markets like flash-memory based machines. The company has been benefiting from growth at VMware, and has come under pressure from activist shareholder Elliott Management Corp. to spin off the software maker and explore options for other businesses.

VMware Earnings

VMware, the biggest maker of virtualization software that lets companies put multiple workloads on a single server to save money, on Tuesday reported a first-quarter sales gain of 11 percent, while saying a stronger U.S. dollar will hurt revenue in the current period.

Elliott has said EMC is undervalued and that the parent is competing with its VMware unit, hindering opportunities for both. In January, Elliott and EMC struck a standstill agreement that called for EMC to appoint two Elliott-approved directors.

EMC’s board has been considering strategic options, including a spinoff, and held talks about a merger with Hewlett-Packard Co. that stalled over disagreements on price, people familiar with the matter said in September.

EMC’s analyst day in March increased confusion for many investors, Amit Daryanani, an analyst at RBC Capital Markets, said in a note to clients.

“There has been increased despair among EMC holders as the analyst day created more questions rather than answers,” said Daryanani, who rates the stock the equivalent of a buy.

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