EMC tempers expectations, accelerates shift to emerging storage technologies

EMC executives reduced their 2015 revenue forecasts for the second time this year following a quarter of tepid growth. They also said the vendor will implement plans to cut costs by $850 million a year and shift investment from traditional storage products such as its VMAX and VNX arrays to emerging technologies including flash and software-defined storage.

EMC CEO Joe Tucci also continued to defend keeping the EMC Federation intact instead of spinning off VMware or other significant pieces.

The forecast reduction and spending cuts came out during EMC’s quarterly earnings call. The vendor reported revenue of $6.1 billion last quarter, up three percent year over year. The storage business grew only one percent to $4 billion. As a result of those results, EMC now expects $25.2 billion in 2015 revenue, a $500 million downward adjustment over its previous guidance and $900 million from its original 2015 forecast.

“The results were mixed. We fell a bit short of revenue expectations,” Tucci said, noting profit of $487 million was a bit better than expected.

The plan to save $850 million annually in cost cuts will be in place by the end of 2016, with $50 million in cuts coming this year, according to CFO Zane Rowe. Tucci and Rowe said some of those savings will be shifted to growth products such as flash and ViPR, ScaleIO and Elastic Cloud Storage.

EMC emerging storage products, which include Isilon clustered NAS along with flash and software-defined storage, increased 49 percent year over year to $718 million. XtremIO grew more than 300 percent.

On the downside, VMAX revenue fell 13 percent to $892 million, and backup and data recovery dropped nine percent to $1.43 billion.

David Goulden, CEO of EMC Information Infrastructure (storage), said he expects traditional storage – VMAX and VNX – to grow two percent annually until 2018, and only about one percent this year.

“We believe the traditional storage market will not improve this year,” he said, adding that EMC will invest in flash, software-defined storage, big data and the cloud “to remain ahead of the market. We will rebalance resources to self-fund growth initiatives.”

Goulden said he expects a new Isilon release and the generally availability of the DSSD flash system in the second half of 2015 should help sales. Tucci said “I’ve never seen a product with as much demand for betas as DSSD.”

Tucci repeated that he is opposed to breaking up the EMC Federation, which includes VMware, Pivotal and RSA Security. Tucci said EMC II and VMware realize twice as much revenue from deals where both companies are involved than when each is in deals alone. He maintains that in the shift to convergence and cloud computing, the combination of companies makes EMC stronger.

“Splitting this federation or spinning off VMware is not a good idea,” he said. “One of the biggest transitions every company has to do is move to the cloud. Data centers are moving to cloud technology, both private and managed clouds. If you are doing that, would you rather do that as just VMware, as just EMC, as just Pivotal? Or are you much stronger doing it together?”

Tucci, who is also the EMC chairman, would not speculate on when EMC would name his successor as CEO. “I don’t want to comment on the timing,” said Tucci, who has postponed his retirement several times. “I am committed to giving the board the time they need to make sure the succession process works terrifically. I don’t want to put a deadline on the board, but they are actively engaged [in the succession process].”