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Just Back from Boston and Cleveland

by Administrator on July 23, 2008

Interesting trip started Sunday.  I flew up to Boston to meet with a couple of firms, F5 Networks and Tervela, on Monday, then dashed over to a great DR discussion courtesy of TechTarget and CDW in Cleveland at the Ritz Carlton.

There are some interesting developments at the Boston F5 shop, formerly Acopia Networks, which I will blog about later.  They have a lot of unexploited potential to move into the file system as a service space, sort of an ultimate deconstruction of the storage array. 

I was very impressed by the second company, newcomer Tervela, which makes a switch designed as a message bus.  We plan to do a deeper dive into their technology.  They are getting a lot of traction right now in the area of trade reconciliation systems support — lots of messages need to flow at warp speed between client/server platforms.  Clearly, Bursa could have used them when a hard disk failure, and subsequent backup system failure, shut down the Malay stock exchange.  Might have saved the CIO his job. 

Can you imagine a disk drive failure costing your CIO his or her job?

That doesn’t happen in Cleveland, mostly because most shops attending our event yesterday use tape as a safety net.  Not all of them, but most of them.

One fellow I chatted with said that his infrastructure is all EMC and that he is replacing tape with a VTL that will replicate its data to an identical VTL at a different location.  Disk to disk replication via SRDF and Replistor is already a fixture at his site and he thinks it works better than tape…though he concedes that software license costs, hardware lock-ins with EMC, and bandwidth demands probably put such a solution out of reach of companies with less coin in their pockets. 

I don’t recall what company the fellow was with, but I think it was a financial firm.  If so, it raises a couple of interesting questions.  With the myriad problems in the financial industry today, how long can these once well-heeled companies continue to buy overpriced solutions from stovepipe technology vendors?  The fellow said he could do things with ISE, which his EMC account team had dismissed as “bare bones” storage, but who would buy the steak dinners and the tee times if you got rid of EMC?

EMC’s numbers this quarter were stellar according to one analyst:

QUOTE

  • EMC was able to show a healthy top-line beat driven by particular strength in hardware and services, both of which saw double-digit year/year growth.
  • EMC reported $0.01 of upside to the Street (in-line with our $0.18 estimate), helped by 7/10c from a lower share count.
  • EMC had a balanced quarter, with storage, content management, and security all seeing upside to our forecast – only VMware was light.
  • EMC essentially re-iterated full-year targets which now include the contribution from IOMEGA.

Highlight Items:

  • EMC revenue was $3.67B, up 17.6% Y/Y, vs our estimate of $3.58B and the Street’s $3.56B.
  • Consolidated GAAP EPS was $0.18 vs our estimate of $0.18 and the Street’s estimate of $0.17.

Revenue Breakdown by Segment

1) Information storage systems revenue was $1.53B, up 12.8 Y/Y, vs our estimate of $1.47B.

2) Information storage software revenue was $934M, up 7.6% Y/Y, vs our estimate of $961M.

3) Information storage services revenue was $1.21B, up 34.5% Y/Y, vs our estimate of $1.15B.

Revenue Breakdown by Content

1) Storage revenue (incl. storage HW, platform SW, services) was $2.87B, up 13.7% Y/Y, vs our estimate of $2.78B.

2) Content management revenue was $204M, up 17.5% Y/Y, vs our estimate of $202M.

3) Security revenue was $144M, up 15.3% Y/Y, vs our estimate of $139M.

4) VMware revenue was $453M, up 51.8% Y/Y, vs our estimate of $460M and the Street estimate of $459M.

– VMware license revenue was $281M, up 37.1% Y/Y, vs our estimate of $313M.

– Gross margin was 55.2% vs our estimate of 55.6%.

– Product gross margin was 54.5% vs our estimate of 55.2%

– Services gross margin was 56.6% vs our estimate of 56.5%

o Total OpEx was $1.58B vs our estimate of $1.55B.

o Operating margin was 12.3% vs our estimate of 12.4%.

o Total cash was $8.1B vs $7.9B last quarter and $5.9B in the year ago quarter.

o DSOs were 54 days vs 50 days last quarter and 49 days in the year-ago quarter.

o Inventory turns were 6.8x vs 6.5x last quarter and 6.9x in the year-ago quarter.

o Deferred revenue was $3.07B vs $2.97B last quarter and $2.37B in the year-ago quarter.

Go Forward:

  • EMC reaffirms its prior full-year targets of revenue around $15B and non-GAAP EPS without ESO of ~$1.04 (non-GAAP EPS with ESO of $0.78), slightly above the consensus revenue of $14.97B and in line with the Street’s EPS forecast of $0.78.
  • Our CY08 revenue / EPS estimates are $14.96B (up 13.1% year/year) and $0.80, respectively.
  • EMC does not provide targets for the September quarter, where we expect little change to either our forecast or the Street’s.

The Street’s revenue and earnings estimates are at $3.71B and $0.19, respectively.

UNQUOTE

I am noodling over these numbers to determine what the really mean in light of recent events, such as the ouster of VMware’s CEO and cofounder, the worsening credit crunch and budgetary belt-tightening by EMC accounts, and the rise of low cost competitors.  A lot of folks I speak with are wondering how long it will be before EMC is purchased and its assets sold off by a raider.  Interesting notion that.

Stay tuned.

{ 1 comment… read it below or add one }

jimoconnor July 25, 2008 at 1:22 pm

Jon: Not sur if you remember me but you’ve written about Bus-Tech in the past.

In case you were unaware of it, Bus-Tech is the manufacturer of the mainframe VTL you mention in this piece. It is resold by both EMC and HDS.

From our position we are seeing many large financial instiutions adopting this technology. The primary reasons being a streamlining of tape operations, enhanced DR capabilities, improved data protection and security (encryption).

Love the blog; keep up the good work.

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