EMC Profit Drops 33%, Layoffs Loom

The company will lay off 4 percent to improve operations as it continues to reconcile its spending spree.
EMC (Quote)  Tuesday said third-quarter revenues dropped a third from a year ago and vowed to cut roughly 4 percent of its workforce to make room for its 21 acquisitions of the last three years.

EMC, which has spent the last few years broadening its portfolio to include software for virtualization, security and content management, said its profit fell to $283.7 million, or 13 cents a share.

This is a 33 percent drop from the $421.7 million, or 17 cents a share profit from a year earlier.

To improve operations, the Hopkinton, Mass., company said it would cut some 1,250 employees by the end of 2007 from its workforce of about 26,500.

Cuts will be made worldwide in management and other areas where redundancies exist, although none will come from EMC's VMWare virtualization software group.

From this restructuring, EMC estimates that it will record a pre-tax charge of between $150 million and $175 million, or 6 cents per diluted share in the fourth quarter of 2006.

Lamenting the layoffs on a conference call this morning, EMC President and CEO Joe Tucci said the company's approach is not to "break a company" by shedding core assets such as people.

However, he said these cuts were necessary.

Asked to provide more color about the cuts, Tucci refused, noting that most of the people affected are just finding out today.

There were silver linings, too.

EMC, which competes with IBM (Quote), Hitachi Data Systems (Quote) and HP (Quote) in the storage market, said Q3 revenue did rise 19 percent to $2.82 billion from $2.37 billion in Q3 2005.

David Goulden, executive vice president and CFO of EMC, said on the call this is thanks to strong demand for new Symmetrix DMX-3 and EMC Clariion CX3 storage arrays, VMware products and Smarts resource management software.

Systems revenue in Q3 was $1.3 billion, a 19 percent increase from the year-ago period.

That's an improvement from Q2 in July, when the company reported only an 8 percent increase in systems sales, which was the main culprit in its earnings shortfall.

Software license and maintenance revenue grew 25 percent to $1.1 billion. Professional services and systems maintenance grew 7 percent.

VMware, which has been EMC's most consistent growth segment since the acquisition two years ago, grew total revenues 86 percent year-over-year to $188.5 million.

Smarts' software license sales grew more than 100 percent for the quarter.

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