EMC Corp. fell short of analyst expectations on earnings for the third quarter, and the company confirmed reports of a deal to absorb most of Cisco’s stake in a joint venture between the two companies. EMC’s stock price closed up less than 1 percent on Wednesday, at $27.37, after initially dropping following the earnings news.
Hopkinton-based EMC said that it will take over its joint venture on data-center technology with Cisco, VCE, which is currently seeing a $2 billion annual run rate for revenue. “We think this will be a major growth driver for EMC,” CEO Joe Tucci said during the company’s earnings call Wednesday.
Cisco will continue to have a 10 percent equity interest in VCE; the deal is expected to be finalized this quarter, and a price was not disclosed. However, the Wall Street Journal reported that EMC would be paying a trivial amount for VCE, and the EMC news release says the deal is “expected to have no material impact” to earnings this year.
VCE offers so-called “IT convergence” technology, which aims to simplify data-center infrastructure in the cloud computing era. EMC plans to use VCE to help deliver its “hybrid cloud” products—which combine on-premises computing resources with cloud-based ones—to large companies.
In the news release, the firm said that EMC and Cisco “jointly determined that this new structure would serve as the optimal model for VCE’s next phase of expansion, innovation, and long-term growth.” According to EMC, VCE surpassed a $2 billion annualized demand run-rate exiting the third quarter—marking its sixth consecutive quarter of more than 50 percent year-over-year growth.
EMC has reported it owned a 58 percent stake in VCE and had invested $1.25 billion into the venture; Cisco has disclosed it has a 35 percent stake and has invested $716 million into VCE. In 2012 I took a look at how VCE compares to startups in the same space, including well-funded Westborough startup SimpliVity.
Meanwhile, Tucci also said during the earnings call that he could stay on as CEO beyond his expected end date of February 2015. Tucci said that would be months or quarters—not years—and that he would also be open to staying a part of the company in a chairman role after leaving as CEO.
As for EMC’s third quarter, here are the financial results:
• Earnings. 44 cents per share, compared to 40 cents during the same period a year earlier. Analysts had been forecasting 46 cents per share.
• Revenue. $6.03 billion, a roughly 9 percent jump year-over-year, from $5.54 billion. That’s above the $6 billion analysts had forecast.
The quarterly results are “evidence that our strategy and execution are working,” Tucci contended in the news release. “Our strategically aligned businesses – EMC Information Infrastructure, VMware, Pivotal and RSA – are well positioned to capitalize on the massive IT market opportunity in front of us.”
The defense of VMware would seem to suggest that EMC executives are not now considering selling the company’s stake in VMware (and Tucci also shrugged off the notion during the earnings call).
Pressure to do so is coming from an activist shareholder, Elliott Management of New York. The firm wants Hopkinton-based EMC to make changes to boost its share price, most notably through spinning off VMware.
Background: EMC Corp. (NYSE: EMC) is the largest computing tech firm in Massachusetts by revenue, with sales of $23.2 billion last year and 9,000 employees in the state as of the start of this year. The company lists a total of 25 offices in Massachusetts, including two in Cambridge and one in Boston.