EMC Earnings Call Nuggets: Improved Growth Rate and Displacement of NetApp-Centric Solutions

EMC Corporation (NYSE:EMC) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Improved Growth Rate

Keith Bachman – Bank of Montreal: I want to ask, Joe, in particular, you about confidence on the guidance and to break that down. If I takeaway what was generally perceived to be very weak, VMware guidance last night for core EMC or infrastructure EMC infrastructure group, it looks like you’re guiding to around 6% revenue growth for that division. And in the last two quarters, you’ve posted year-over-year growth of call it 3% and 5%, so it looks like embedded within it is some improvement in growth rate for EMC infrastructure group, and I just want to try to get some understanding about why you think there’s some improvement in that growth rate; what are some of the factors contributing to that?

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Joseph M. Tucci – Chairman and CEO: I’ll start it and then maybe David will add a little more. First of all, I think if you really think of any kind of given period of time, it is pretty easy to starve IT a bit for a while, but if you really truly believe as most companies do at IT, is the root and virtually it’s impossible to get productivity gains or innovation these days without IT. Now you can’t starve it for too long. So, IT, I will classify – certainly year of – 2012 was certainly a year of uncertainty and caution. I think there is some lingering uncertainty in 2013 for sure, but I see more of kind of cautious optimism out there, which is an improvement. And the companies and entities out there understand that cloud and Big Data are going to change the landscape, and if one doesn’t invest in these technologies, their companies will be left hopelessly behind. So, these are things that give us encouragement. The other thing is, I always look at the product cycles, and we have extremely exciting product cycles this year and a lot of refreshes, we have a huge base. So, these things together give us a lot of confidence. And our strategic reach, I think if you – as I delineated, six or seven priorities we had for the Company, these are really well-placed, and if you look at the CIO priorities for their spending, they map extremely well. So, we’re in a good space. Customers understand they need to invest, and they move from cautious to, I think what I’d call, a cautious optimism. David, you want to add anything?

David I. Goulden – President and COO: Yeah, Keith, let me just pick up on that. So, yes, you’re right. So, we are expecting 6% growth ex-VMware, up from 5% this year. A couple of other factors. Network storage marketplace grew faster than IT spending. We do expect it to grow fast in IT spending in ’13. As Joe said, we expect a small uptick in IT spending growth in total from 2% in ’12 up to 3% in ’13, so that’s going to help us. And then, last but not least, just reiterate what Joe said about the strength of the product cycle and what that can do for us, and consistent with the macro guidance, of course, expect higher growth in the second half than in the first half, but your math is exactly correct. Last but not least, I’ll just point out, that we do expect to get decent continued increase in operating leverage as well for the year ex-VMware, and, of course, with VMware in the consolidated numbers as well.

Displacement of NetApp-Centric Solutions

Amit Daryanani – RBC Capital Markets: David, I think you touched on the success of Isilon and verticals outside the core areas they play and then you talked about financials being a big success area. I’m curious, when you look at these new verticals, is Isilon actually winning against some of the traditional competitors (you’ve) had. I think in the past you’ve talked about 80% displacement of NetApp-centric solutions or in the near verticals do you see cannibalizing more of your traditional VNX product line?

David I. Goulden – President and COO: I think that definitely when we look at the year, the newer verticals where Isilon is having success is against the more traditional NAS players and the example that I referenced in my prepared remarks walls against an existing NAS incumbent and I gave you all the facts and figures around that. I think what is really exciting is that with the Mavericks release that shipped on schedule right at the end of the fourth quarter which obviously didn’t have much of an impact on Q4 numbers directly, but the potential is now there for 2013 for the aperture that we can kind of focus on in Isilon to be that much wider. Just to recap what we did with Mavericks; we certainly performed – we improved the performance drastically about 50% reduction in latency, but then we added a lot of features around data protection, security and integration backup to VMware and all those together represent a quantum leap in terms of the size of the market that we can address. So, yes, the new verticals will be a high part of the growth and it really is incremental market opportunity compared to where EMC’s traditional storage platforms play.

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