EMC (EMC, Financial) is among the leaders in data storage solutions. It also provides various other solutions such as data warehousing, business intelligence, virtualization, etc. Some of its products such as EMC Atmos, Vblock, Mozy, Syncplicity are gaining worldwide acceptance among businesses moving to the cloud
Performance so far
If we preview its recently declared Q3-2014 results, decent growth is seen is all segments. It reported revenue of $6.0 billion, up by 9% year over year. The main revenue segment for the company is Information Infrastructure, VMware and Pivotal. The revenue from the Pivotal segment increased 24% while Information Infrastructure and VMware recorded growth of 6% and 17% respectively. The growth in the pivotal business of the company is primarily due to the various industries are now option for new generation solution; this is benefiting companies like EMC.
Revenue growth was mainly driven by its high end storage business that rebounded in third quarter, VMware and Pivotal.
EMC’s stake in VMware
VMware is a pioneer in virtualization software and a subsidiary of EMC. EMC holds around an 80% stake of VMware. VMware posted revenue growth of 17% year over year. This growth also contributed to the revenue and earnings of EMC. The growth for the VMware was mainly due to constant investment by customers in software defined data center, hybrid cloud solution with end user computing.
A new company, Pivotal, was formed earlier last year as an amalgamation of various divisions and products from EMC and VMware. Pivotal's product portfolio will have Pivotal Labs, Cloud Foundry, Greenplum, Gem Fire, Cetas, Greenplum and Vfabix Suit (product of VMware). Pivotal was formed so that EMC can be more focused on cloud application, security applications system, and large scale data management systems. General Electric has also had planed an investment of $105 million in Pivotal to further assist its growth.
Regional growth
Asia Pacific and Japan grew 4% year-over-year, while Latin America revenue increased 1%, and a 15% rise was seen in the EMEA region. EMC's revenue grew 9% in the BRIC nations. North America that contributes to approximately 55% of the total revenue also recorded growth by 8% year over year.
Journey ahead
The company also plans to repurchase a total of $6 billion worth of shares by 2015 and this should have a positive effect on the EPS.
Looking at the growth trajectory of EMC, the company should be able to at least match its estimates going forward.
Moreover, its strategic investment in businesses such as XtremIO, ViPR and Pivotal should also help EMC in attaining revenue growth.
Competitors
NetApp (NTAP, Financial) is a company that provides IT-enabled business solutions such as data security, cloud solutions, and data management systems. But looking at its recent performance, NetApp doesn't look very enticing.
In the first quarter of fiscal year 2015, NetApp posted total revenue of $1.49 billion. Non-GAAP net income grew by $6 million, to record $198 million as compared to $192 million in the same quarter last year.
Also, NetApp is expensive at current levels. The company trades at a price-to-earnings multiple of almost 22x, while in comparison, EMC trades at a trailing P/E of 20. With quarterly revenue growth slowing down and earnings dropping, the valuation looks rich and investors are advised to stay away from NetApp.
Conclusion
EMC's stake in VMware and the constant adoption of the cloud are expected to drive its growth in the future. Moreover, as seen above, the company is cheaper than peers such as NetApp and has a lucrative share repurchase plan in place. So, investors should consider putting their money in this stock if they are looking for a play on the cloud.
