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EMC and VMware report difficult quarters

The storage hardware supplier with a little help from its virtualisation subsidiary reports first-quarter profits that are OK but warns that second quarter will be tougher
Written by Colin Barker, Contributor

Data-storage manufacturer EMC reported a 23 percent drop in quarterly profit on Thursday and warned that the situation would get worse before it got better.

A day later, VMware, an EMC company, reported that it was doing better than EMC, but said revenue from licensing declined by 13 percent from the first quarter last year.

EMC reported first-quarter 2009 revenue of $3.15bn (£2.15bn), operating cash flow of $864m and free cash flow of $681m, the company said in a statment. All cash and investments totalled $9.8bn at the end of the quarter, the company said.

Net income in the first quarter was $194.1m, compared with $251.6m in the first quarter of 2008.

"As we look to the balance of 2009, we believe the global IT spending environment has reached, or is very near, the bottom," EMC's chief executive, Joe Tucci, said in a statement. "We expect IT spending to improve in the second half of 2009 as customers will have better budget visibility, be further through their own restructuring programs and broader stimulus packages should be underway."

Meanwhile, EMC's virtualisation company VMware reported revenue in the first quarter of 2009 of $470m, an increase of seven percent from the first quarter of 2008. Cash was more than $2bn and total deferred revenues were $917m. Operating cash flow for the first quarter was $259m, an increase of 95 percent from the same period in 2008.

While services revenue in the quarter was up as a percentage of total revenue at 45 percent, compared to 33 percent of total revenue in 2008, the economic situation meant licence revenue was down 13 percent at $257m from the first quarter last year, the company statement said.

"Total licence sales are lagged," said VMware's chief financial office, Mark Peek at a telephone conference. "Overall sales were down, particularly in Europe, and licence revenue declined 12.8 percent from the very strong quarter a year ago," he said.

Ovum analyst Tim Stammers said in a statement that, given VMware's recent growth, news of a fall in revenue was "slightly surprising".

One of the reasons VMware has talked about revenue shrinking, Stammers said, was that in May the company "will ship a very major update to its server-management tools, which form the lion's share of its revenues", Stammers said. "New products on the near horizon always encourage customers to delay purchases until their arrival", he said.

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