EMC Corp posted a 20 percent rise in quarterly profit on Tuesday on higher sales of data storage equipment, but shares fell as its full-year forecast disappointed investors hoping for a more bullish outlook.
The stock of the world's No 1 maker of corporate data storage equipment had climbed 27 percent over three months on expectations for strong earnings growth and optimism about the outcome of the upcoming initial public offering of EMC's VMware software business. EMC said second-quarter net income rose to $334 million, or 16 cents per share, from $279 million, or 12 cents a share, a year earlier.
The results beat the average analyst estimate by a penny, according to Reuters Estimates. But the company's forecast for full-year profit was little changed, falling short of the average Wall Street forecast. "Expectations were pretty high," said Morgan Keegan analyst Brian Freed. "People wanted a great quarter with upward revisions to estimates."
EMC shares fell 1.33 percent to $19.25 in morning trade. Quarterly revenue rose 21 percent to $3.12 billion. In January, EMC said it expected to earn at least 64 cents on revenue of at least $12.7 billion in 2007. On Tuesday it altered the language slightly, saying it expected to earn more than 64 cents per share on revenue of more than $12.7 billion.
Analysts' average forecast is 67 cents per share on revenue of $12.8 billion, according to Reuters Estimates. Sales of EMC's data storage hardware products rose 18 percent from a year earlier, led by strong revenue growth from the company in mid-range information storage products.
EMC's two main rivals in that market are Hewlett-Packard Co and Network Appliance Inc, generally known as NetApp. Caris & Co analyst Shebly Seyrafi noted that EMC's growth in mid-range corporate storage gear marked a contrast to comments from NetApp, which said in May that it saw an abrupt decline in orders during April amid a drop in corporate technology spending.
"It also suggests that NetApp may have lost share to EMC in the June quarter, if you think about NetApp's guidance," Seyrafi said. Growth at EMC, based in Hopkinton, Massachusetts, is being fuelled by sales of software products acquired in recent years.
Its fastest-growing performer has been VMware, whose computer programs help companies boost the efficiency of server computers. EMC is in the midst of efforts to take its VMware unit public through an initial public offering, which analysts say could be the hottest of the year. Chief Financial Officer David Goulden said in an interview he expects the IPO to close before Labour Day, which is September 3.