In the second quarter of this year, EMC’s (NYSE: EMC) share prices gained slightly more than 10%, while the S&P shed 8%. This exceptional outperformance can be attributed to strong enterprise investment in the new “cloud computing” infrastructure. Analysts are expecting EMC to report $0.27 cents per share in earnings, on revenues of $3.98 billion.
Intel’s (NASDAQ: INTC) earnings report was our first concrete glimpse into the acceleration of this trend. Intel’s earnings beat on account of strong demand for chips for servers. This increased demand was particularly strong from the corporate sector, as businesses were looking to upgrade their computers and better position themselves for the new state of technology. This portends what should be a strong report from EMC.
With many focused on Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT) reporting earnings this week, EMC’s report tomorrow has taken a back seat. However,that should not be the case considering how important EMC is in one of the fastest growing subsets of the technology sector. While Apple gives us a far better gauge into consumer demand for technology products, EMC will provide a glimpse into how businesses are preparing for the changing structure of the Internet.
We know that in the first quarter of the year, data storage grew 17%, with EMC maintaining a dominant position in the industry. As more of the technological infrastructure moves into the “cloud,” this trend should not only continue, but accelerate and EMC is in a great position to reap these benefits, as is its closest competitor NetApp (NASDAQ: NTAP). With its ownership and partnership with VMWare (NYSE: VMW), EMC has an extra tool with which to compete for business.
At this juncture, EMC is both a value and growth play that provides a pocket of strength amidst a gloomy market environment (check out my take on EMC in the Tech Cheat Sheet). Just last week, EMC’s share prices broke out to 52-week highs. EMC will look to continue the breakout move with a strong showing; however, investors should note that both good and bad earnings have been sold thus far in earnings season. That doesn’t mean that the same fate awaits EMC, but the stock’s response will offer some perspective on how best to position investments in the technology sector moving forward.
Disclosure: Long EMC and VMW