EMC, Intel, SAP, and VMware on the Move
Lead Analyst: Cal Braunstein
EMC Corp. announced preliminary second quarter financial results along with executive changes at EMC and its subsidiary, VMware Inc. In other financial news, Intel Corp. reported its second quarter results, which saw its earnings drop while SAP AG reported strong second quarter financials.
Focal Points:
- EMC and VMware made surprise announcements when word leaked out that VMware CEO Paul Maritz was being replaced. Joe Tucci, EMC Chairman and CEO stated the IT industry is in the midst of an extraordinary transformation unlike anything we have seen before – a major shift to Cloud Computing, Big Data applications and delivering IT-as-a-Service. To capitalize on this shift Pat Gelsinger, EMC President and COO of Information Infrastructure Products, has been appointed CEO of VMware while Paul Maritz is joining EMC as Chief Strategist, reporting to Tucci. Both changes are effective September 1st. David Goulden, Executive Vice President and CFO, will assume the additional roles of President and COO of EMC effective immediately. On the financial front, EMC announced preliminary second-quarter 2012 results with record second quarter consolidated revenues of approximately $5.31 billion, up 10 percent year-over-year. The company also had record second quarter non-GAAP earnings per weighted average diluted share (EPS) of $0.39, up 11 percent over the previous year's quarter. Meanwhile, VMware is projecting second quarter revenues of $1.123 billion, an increase of 22 percent from second quarter 2011.
- Intel reported second quarter revenues of $13.5 billion, up 3.6 percent year-over-year. Net income was $2.83 billion, down 4.3 percent from $2.95 billion a year earlier, as operating expenses rose faster than revenues. Consumer demand in North America and Western Europe is not recovering as fast as Intel expected, according to CEO Paul Otellini. He also stated growth in emerging markets such as China and Brazil is also slowing down. For the full fiscal year, Intel now expects sale to grow three to five percent from last year, rather than the "high single digit" level the company predicted earlier. He also noted that Ultrabooks are still relatively expensive but prices are expected to drop to $699 this fall.
- In the quarter just ending, SAP announced it had total revenues of €3.9 billion, an increase of 18 percent over the €3.3 billion booked in second quarter of 2011. The company booked €1.06 billion in new license sales, up 26 percent compared to the year-ago period when it reported €0.84 billion. Software and support revenues for the quarter came to €3.12 billion, a jump of 21 percent. On an IFRS accounting basis, operating profits only rose by 7 percent in the quarter to €920 million. The company boasted of posting its tenth consecutive quarter of double-digit growth in non-IFRS software and software-related service revenues. The company also claimed it had stellar results in SAP HANA, mobile and cloud computing in all regions.
RFG POV: The management teams at EMC and VMware continue to expand and execute their visions of the future of IT and deliver top-tier products and services in a timely manner. The removal of Paul Maritz at VMware was first thought to be a rare management error but once the total set of announcements was made, the logic was compelling. With Pat Gelsinger at the helm of VMware and Maritz as EMC's chief strategist, the companies should be able to keep up the double-digit growth momentum that the firms have delivered over the past few years. IT executives with strategic relationships with either or both companies should get a strategic update by yearend so that they can understand the new vision and determine how it fits with the corporation's strategy and target architecture. Given the slowing demand and the decline of PC sales, it is not surprising that Intel did not perform as well as it has in the past. Until the company gets its Ultrabook and Atom product lines selling well, growth will be diminished or possibly shrinking. Apple Inc. is a formidable competitor and its products are expected to take market share from Intel for the next few years. The company has made some very significant advances in driving data center efficiency internally and if it can get its customers to follow suit, it might be able to get data center product and services sales making up for the slack in PC revenues. IT executives should add Intel to the list of IT firms to talk to about slashing the cost of data center operations. SAP continues to plow on and remain a thorn in Oracle Corp.'s side. It has been able to revise its business model so that it can capture the new revenue streams without doing much damage to its traditional revenue routes. The company is well poised to address the new hot areas of cloud, mobile and high performance in-memory computing for business intelligence and analytics. IT executives should keep abreast of Oracle's and SAP's strategies and visions and, where appropriate, incorporate relevant components – and possibly products – into their future visions and target architectures.