U.S. Federal Budget Uncertainty Hampers Business Plans, EMC Says

EMC Corp. said U.S. contractors need budget clarity after weaker-than-expected government sales in the third quarter led the world’s largest maker of storage computers to cut sales and earnings forecasts for the year.

“Uncertainty makes it harder for us to predict our business, when you have an important sector that’s limping along from a budget point of view,” Chief Financial Officer David Goulden said in a telephone interview this week. “It’s part of the global environment right now, everybody is impacted by it to a certain extent.”

EMC, the majority owner of VMware Inc., is more dependent on sales to the U.S. government in its third quarter than in any other, and the lack of a formal fiscal budget this year limited spending on new projects and lengthened the approval process, Goulden said. EMC shares posted their biggest decline since May 2012 after reporting the quarterly results last month.

Congress failed to reach an agreement to fund many government functions after the federal fiscal year ended Sept. 30, triggering a 16-day government shutdown, the first since 1996. The resolution of that fight ended with a funding law that expires Jan. 15. Lawmakers have made little progress reaching an agreement since.

In addition, federal agencies this year have been coping with the across-the-board cuts known as sequestration, increasing the uncertainty for contractors.

Still, EMC expects a pickup in global technology spending this year, Goulden said -- albeit at a lower rate than previously anticipated.

‘Above Average’

“We are still likely to see an above average growth rate in spending in the second half of the year,” Goulden said. “We were fairly confident growth in total IT spend would be 3 percent, now we think it will be between 2 percent and 3 percent.”

Cuts to technology spending forecasts have followed worsening economist projections for global GDP growth in 2013. In July, research firm Gartner trimmed its global forecast by 2.1 percentage points to 2 percent.

EMC has been preparing for the release of its all-flash array, enterprise storage product Xtremio, after acquiring the business for $430 million in May 2012. Goulden said he expects the product to begin contributing to EMC’s revenues in 2014.

“Xtremio is a very complex, disruptive and unique architecture, and it’s taken a bit of time to get it right before opening it up to broader-use cases,” Goulden said.

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