EMC Corporation (EMC): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

Summary:
EMC’s third-quarter earnings missed the Zacks Consensus Estimate while revenues beat. Upbeat forward guidance was supported by customer wins, strong backlog, high-end product launches and VMware. EMC’s strategic acquisitions, partnerships and product breadth focusing on the third generation IT platform (Big Data, predictive analytics and mobile computing) will help enterprises move to the cloud, thus driving its long-term growth. However, EMC faces significant competition in storage, cloud computing and Big Data markets, which along with the sluggish IT spending, pricing pressure and increasing activism from Elliot Management will continue to pressure the stock. Thus, we maintain our Neutral recommendation and set a price target of $31.00.

Overview:

Incorporated in 1979 and headquartered in Hopkinton, MA, EMC Corp. (EMC) offers storage and security solutions for every layer of IT architecture. The company’s evolving product portfolio is focused on providing the infrastructure for Cloud Computing and Big Data.

EMC reported revenues of $23.22 billion in fiscal 2013. The company’s product sales, comprising systems and software licenses, contributed 59% of 2013 revenues, while Services revenues, comprising software maintenance, installation services, professional services, hardware maintenance and training services accounted for the remaining 41%.

EMC operates through three segments EMC Information Infrastructure (76.5% of revenues), Pivotal (1.3% of revenues) and VMware (19.2% of revenues).

The EMC Information Infrastructure business consists of three business units, namely, the Information Storage business, the RSA Information Security Segment and the Information Intelligence Group Segment.

The Information Storage business helps to store and protect information and derives revenues from storage systems, storage software and related customers. The information storage systems can be deployed in storage area network (SAN), networked attached storage (NAS), unified storage combining NAS and SAN, content addressed storage (CAS) and direct attached storage (DAS) systems.

RSA Information Security business is the security division of the company that offers solutions in security management and compliance, including enterprise governance, risk and compliance, data loss prevention, security information management, continuous network monitoring and fraud protection. The segment’s products also encompass identity management and protection, which include identity assurance and access control, encryption and key management.

The Information Intelligence Group provides software, solutions and services that help customers to collaborate, manage, access, distribute and control information securely from anywhere, at any time and from any device.

Pivotal formed in the second quarter of 2013 comprises strategic technology, people and programs from Greenplum, Cloud Foundry, Spring, Cetas, Pivotal Labs, GemFire and other products from the VMware vFabric Suite. The company was formed with investments from EMC, VMware and General Electric. Pivotal offers an integrated technology platform that supports cloud computing and Big and Fast Data Applications.

VMware Virtual Infrastructure business is represented by EMC’s majority equity stake (80%) in VMware. The company is a leading provider of virtualization and virtualization-based cloud infrastructure solutions. Its offerings support Software-Defined Data Center, End-User Computing and Hybrid Cloud Computing.

Successive acquisitions have helped the company build a strong portfolio of products, which provide tough competition to large software vendors. EMC competes with large companies such as IBM, NetApp, Hewlett-Packard and Hitachi Data Systems.

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