EMC Swings to Loss for 3Q Amid High Competition, Low Demand
By JERRY GUIDERA
Staff Reporter of THE WALL STREET JOURNAL
EMC Corp., hit by a sharp drop in demand for its data-storage products amid stiffening competition, posted a steep third-quarter loss and turned to more layoffs in another effort to contain costs.
The Hopkinton, Mass., company, a darling of the technology-led stock boom of the 1990s, declined to provide specific estimates for the rest of the year, but officials hinted that the fourth quarter would be an improvement. Profitability won't return until mid-2002, they warned.
The leading maker of computers used by companies to manage and cache digital files, EMC posted a loss of $945 million, or 43 cents a share, for the quarter, compared with net income of $458 million, or 20 cents a share, for the same quarter last year. Revenue was off 47% to $1.21 billion from $2.28 billion.
1EMC Doesn't Expect to Break Even, Plans to Lay Off 10% of Work Force (Sept. 21)
EMC said the quarterly results included charges totaling $825 million for planned layoffs, write-downs of overstocked products and equipment, losses on canceled office-space leases and investment write-offs.
Revenue fell short of analysts' estimates by about $300 million. That, combined with high fixed operating costs, forced EMC's gross margin -- an important measure of profitability that excludes costs unrelated to manufacturing and sales -- to 37%. As recently as December, EMC's gross margin was nearly 60%.
"This market is slowing a lot faster than many people think," EMC Chairman Mike Ruettgers said.
Looking ahead, Wall Street estimates EMC will post a loss of five cents a share for the fourth quarter, according analysts surveyed by Thomson Financial/First Call. But some analysts yesterday trimmed forecasts and downgraded EMC. One of them, Andrew Neff, of Bear Stearns & Co. in New York, cut his rating on EMC to "neutral" for the first time in more than three years. He had rated it "buy."
The company announced its third round of cost cuts this year. It plans to lay off 4,000 workers in areas from marketing to manufacturing and sales, bringing cumulative cuts in its world-wide staff of 23% to about 19,000 by next June. The company laid off 500 in February, followed by 1,100 in April.
Despite the planned cost-cutting, investors moved away from EMC Wednesday. As of 4 p.m. in New York Stock Exchange composite trading, EMC shares, which are off nearly 80% since January, were at $11.21, down $2.24, or nearly 17%.
EMC officials blamed some of the fallout on a loss of corporate appetite for big-ticket technology products after the Sept. 11 terrorist attacks. Much of the firm's quarterly business is logged during the final month of each period.
Demand for its EMC products has been lowered as customers migrate to cheaper boxes, and rivals introduce other data-management software that makes customers' existing storage systems work more efficiently.
At bathroom-fixtures maker Sloan Valve Co., Chief Information Officer Tom Coleman replaced a $1 million EMC Symmetrix box this summer with 20 smaller boxes from rival Compaq Computer Corp. in order to avoid EMC maintenance fees that were slated to rise to more than $30,000 a year. Sloan's new boxes were steeply discounted, the executive said, because the closely held Franklin Park, Ill., company had forged an earlier deal with Compaq for a number of high-end "servers" used to manage corporate computer networks.
"There's demand for lower-end products now" from Compaq, Network Appliance Inc. and other EMC rivals, said Clinton Vaughan, an analyst with Salomon Smith Barney in San Francisco. "Storage is being bought in smaller chunks now, as needed," EMC President Joseph Tucci said, "And that's not really our wheelhouse."
Rivals International Business Machines Corp. and Hitachi Ltd. have been claiming gains in year-over-year sales of storage boxes, but haven't broken out their numbers. Storage-software vendor Veritas Software Inc., Mountain View, Calif., beat Wall Street estimates earlier this week with the help of a 7% jump in revenue.
EMC's third-quarter software revenue, meanwhile, fell 27% from a year ago. |
