EMC Corp. Tuesday reported record earnings for its fourth quarter and full fiscal year, with US$8.23 billion in revenue for all of 2004. But CEO Joe Tucci also acknowledged that there has been pricing pressure in the past quarter caused by a shortage of hard disk drives and by a decision from IBM Corp. to heavily discount its high-end Shark array line in anticipation of volume shipment of an upgraded version in March.
The price of hard disk drives has historically dropped each quarter, but analysts said prices have remained steady since the beginning of the fourth quarter. "The drive manufacturers don"t have a lot of reasons to continue to drop their costs, so I"m sure that won"t happen," Tucci said.
Kaushik Roy, an analyst at Susquehanna International Group LLP, said pricing pressure on EMC will likely continue until IBM begins bulk shipments of its DS6000 midrange array and DS8000 high-end array in March. Those products were announced in October.
In its earnings report, released earlier Tuesday, Hopkinton, Mass.-based EMC said software sales now make up more than one-third of the company"s revenue stream, with nonplatform software, such as EMC ControlCenter management suite, growing 21 percent for the quarter.
Roy said that"s unusual because storage management software growth was flat in the prior quarter.
Overall, EMC reported 32 percent higher revenue in 2004 over the previous year. Tucci credited the record sales to a "laser focus" on an information life-cycle management strategy and said the company plans to increase the number of bundled offerings to customers in 2005.
He said customers can expect to see far more packaged offerings this year to address business archival and compliance needs. For example, EMC could ship a storage array along with its Legato Software division"s EmailXtender, Documentum Inc. software and a Centera content-addressed storage array, which provides write-once, read-many capabilities.
"We"ll put that all together and call it an e-mail retention and archiving package," Tucci said.
Net income for fiscal 2004 grew 76 percent over last year, to $871 million, and consolidated revenue for EMC"s fourth quarter was $2.36 billion, 27 percent higher than the $1.86 billion reported for the fourth quarter of 2003. Net income for the quarter grew 46 percent over the same quarter in 2003, to $321 million.
Bill Teuber, EMC"s chief financial officer, reported that the company"s software group had consolidated revenue of $410 million in the fourth quarter, a 17 percent increase over the previous quarter. Each of EMC"s software groups had record revenue during the quarter, with double-digit revenue growth across EMC"s core storage management platforms and Documentum and Legato Software products.
Teuber also said he expects midtier market sales to continue to outgrow the high-end space with at least a 10 percent increase in 2005. In comparison, the high-end market is expected to have a growth rate of 3 percent to 4 percent.
Software revenue for 2004 was $2.98 billion, accounting for more than a third of all revenue in 2004, due in part to EMC"s recent software acquisitions. Teuber said integration efforts related to major acquisitions over the past two years are going well, but he added, "There"s still work to be done." Those acquisitions include Legato, Documentum and VMware Inc.
VMware, which was acquired last year by EMC for $635 million, delivered record quarterly revenue of $71 million. And EMC"s services revenue grew 35 percent to $611 million in comparison with the same quarter a year ago and grew by 44 percent for the full fiscal year.
Tucci predicted total revenue growth would continue in the 7 percent to 8 percent range in 2005.
"We believe the overall IT spending environment will be slightly better than 2004 ... with a 4 percent to 5 percent range in spending increase," Tucci said, adding that, on average, customers will add 70 percent storage capacity to their infrastructures this year.