EMC Quarter Forecast Disappoints Some, But VMware Remains StrongBy Reuters | Print
EMC said it sees bumps in the road to economic recovery as U.S. federal government spending has slowed and tech spending in Southern Europe is declining as well.
BOSTON, July 21 (Reuters) - EMC Corp (NYSE:EMC) said it sees "bumps in the road" in the global economic recovery and gave an earnings forecast that disappointed some investors, sending its shares down over 3 percent.
Executives at the world's biggest maker of corporate data storage equipment said on Wednesday that the U.S. federal government is more cautious about technology spending and that tech spending in Southern Europe is dropping.
The market reaction to EMC's outlook reflects investor skepticism about the stability of the global economic recovery, especially in the face of the European debt crisis.
While EMC executives said they expect the company will beat its most-recent forecast for 2010 profit, they declined to say by how much and their vagueness left the door open for earnings to fall short of expectations.
In April, EMC forecast that it would report full-year profit, excluding items, of $1.18 per share. Analysts, on average, expect it to post profit, excluding items, of $1.20, according to Thomson Reuters I/B/E/S.
"With the guidance, they gave us a hamburger. Some investors were expecting a steak," said FBR Capital Markets analyst Daniel Ives.
The company issued the forecast as it released quarterly profit that was in line with expectations.
EMC's second-quarter profit, excluding items, came to 28 cents per share, versus the average analyst forecast of 27 cents.
Second-quarter revenue beat Wall Street projections as U.S. sales climbed 28 percent boosted by strong demand for data storage equipment.
Quarterly revenue climbed 24 percent from a year earlier to $4.02 billion, ahead of the analyst forecast of $3.98 billion.
EMC's second-quarter net income more than doubled to $426 million, or 20 cents per share, from $205 million, or 10 cents, a year earlier.
Chief Financial Officer David Goulden said that he believed U.S. government sales would pick up.
"In the short-term there is definitely a pull-back" in technology spending by the U.S. federal government, he said.
Goulden also said that spending in Southern Europe will decline in the second half of the year, though that will be more than offset by increases in other parts of the region including France, Germany and the United Kingdom.
Shares in the Hopkinton, Massachusetts company were down 3.2 percent to $19.59 in noon trade.
"Investors are a little nervous," said Wedbush Securities analyst Kaushik Roy.
Meanwhile, shares in EMC's VMware Inc (NYSE:VMW) subsidiary 1.9 percent to $73.80 after it issued revenue forecasts ahead of Wall Street expectations late on Tuesday and said sales were strong to small- and mid-sized businesses.
EMC's rivals include IBM, Hewlett-Packard Co (NYSE:HPQ) and NetApp Inc (NASDAQ:NTAP). (Reporting by Jim Finkle; Editing by Derek Caney and Tim Dobbyn)