Big-Data Company Without 'Flare' Is the Real Winner
Despite being a leader in a major enterprise market, EMC's problem (with analysts) is that it lacks "flare." But I am now realizing that is Wall Street's loss and astute investors' gain. It's one of the steadiest performers, one that continues to match superior sales growth with profitability. From that standpoint, the company just might be 20% undervalued even on the most conservative assumptions, and it further affirmed this with its recent earnings announcement.
The quarter that was
The company reported first-quarter net income of $587 million, 23% higher than in the previous year. It logged $5.1 billion in revenue, an 11% increase annually and in line with analysts' estimates. U.S. sales accounted for more than half of consolidated revenue, registering $2.6 billion. EMC beat the Street by a penny on profits of 37 cents a share, while also ending the quarter with $10.9 billion in cash and investments.
Revenue from outside the U.S. was highlighted by the Asia Pacific and Japan region, which reached an all-time record of 20% growth. For 2012, the company sees revenue of $22 billion, in line with the previous Street consensus at $22.2 billion. EMC sees full-year profits of $1.70 a share, a bit below the Street's view of $1.75. But that should not be perceived as a disappointment if one truly understands the company's track record of conservative outlooks, particularly when considering that profits continue to surge due to stronger gross margins as well as an increase of 26% in operating income.
In a statement, company CEO Joe Tucci offered the following: "We are in a time of unprecedented IT and business transformation, propelled by the benefits of cloud computing, Big Data and trust." I have to certainly agree with that statement and as evident by its report and its strong start of the year, the company is poised to further benefit from this transformation. This is the sort of value that prospective cloud investors should consider.
As impressed as I am with EMC's performance, I do, however, remain a bit cautious about its ability to thwart competitive attacks from the likes of IBM and Oracle, particularly as the precious corporate IT expenditures have not fully returned to their glory days of big budgets. But then again, "big data" necessitates "big money" and during the call I was looking to be convinced that the company has a sound blueprint for creating separation between its services from those offered by its rivals.