EMC reports 23% increase in first-quarter profit; achieves 11% growth in quarterly revenue

Issued by Redline a division of DRAFTFCB for EMC Southern Africa
Johannesburg, 25 Apr 2012

EMC delivers ninth consecutive quarter of year-over-year double-digit revenue, profit and EPS growth.

First-quarter highlights:
* Consolidated revenue up 11% year-over-year.
* GAAP net income up 23% year-over-year; GAAP EPS up 29%.
* Non-GAAP net income up 17% year-over-year; non-GAAP EPS up 19%.
* Strong year-over-year percentage increases in gross and operating margins.
* Strong year-over-year increases in operating cash flow and free cash flow.

EMC Corporation (NYSE:EMC) has reported strong financial results for the first quarter of 2012, marking the company's ninth consecutive quarter of achieving year-over-year double-digit growth for consolidated revenue, net income and EPS.

First-quarter consolidated revenue was $5.1 billion, an increase of 11% compared with the year-ago quarter. First-quarter GAAP net income attributable to EMC increased 23% year-over-year to $587 million.

First-quarter GAAP earnings per weighted average diluted share increased 29% year-over-year to $0.27. Non-GAAP (1) net income attributable to EMC for the first quarter was $818 million, an increase of 17% compared with the year-ago quarter. First-quarter non-GAAP (1) earnings per weighted average diluted share were $0.37, an increase of 19% year-over-year.

During the first quarter, EMC generated operating cash flow of $1.7 billion and free cash flow (2) of $1.4 billion, increases of 49% and 67% year-over-year, respectively. Additionally, the company significantly expanded GAAP and non-GAAP gross margin and operating margin percentages on a year-over-year basis, and ended the quarter with $10.9 billion in cash and investments.

Joe Tucci, EMC Chairman and Chief Executive Officer, said: “We are in a time of unprecedented IT and business transformation, propelled by the benefits of cloud computing, big data and trust. EMC is off to a strong start to 2012 and is exceptionally well-positioned to help customers take advantage of these major transformational shifts. We have never been more excited about what this great technology company can accomplish and look forward to helping our customers drive maximum value from their IT investments in the years ahead.”

David Goulden, EMC Executive Vice-President and Chief Financial Officer, said: “EMC's solid first-quarter results are ongoing proof that we are executing on our strategy and on track to deliver our 'triple play' - simultaneously taking market share, reinvesting for growth and delivering improved earnings this year. Based upon our strong start to the year and our opportunity, we now have greater confidence in our ability to meet and potentially exceed our 2012 financial goals for consolidated revenue, non-GAAP EPS and free cash flow. Additionally, with continued steady execution, we are well on our way to achieving the financial potential of 2014 consolidated revenue of over $28 billion, which represents compound annual revenue growth of at least 13% from 2010 and non-GAAP EPS growth even greater than this.”

First-quarter highlights

First-quarter highlights included strong customer demand for EMC's market-leading mid-tier storage products portfolio (3), which increased revenue 26% year-over-year. The company's Isilon scale-out NAS business nearly doubled its revenue year-over-year, and its VNX unified storage family, Backup Recovery Systems (BRS) portfolio, and Greenplum portfolio each delivered strong year-over-year revenue growth.

Also during the quarter, EMC's RSA Information Security business increased revenue 19% year-over-year and revenue from VMware (NYSE: VMW), the global leader in virtualisation and cloud infrastructure, grew 25% year-over-year. Additionally, EMC continued to experience strong customer demand for its broad portfolio of services to help customers accelerate to the cloud. Finally, VCE, the Virtual Computing Environment Company formed by Cisco and EMC with investments from VMware and Intel, continued its momentum as customer adoption of Vblock Converged Infrastructure Platforms increased significantly on a year-over-year basis.

EMC's consolidated first-quarter revenue from the United States increased 11% year-over-year to $2.6 billion, representing 52% of consolidated first-quarter revenue. Revenue from EMC's business operations outside of the United States increased 10% year-over-year to $2.5 billion and represented 48% of consolidated first-quarter revenue. Within this, revenue in EMC's Asia Pacific and Japan region reached an all-time record level, growing 20% year-over-year. EMC's Europe, Middle East and Africa region grew revenue 6% year-over-year and EMC's Latin America region grew revenue 20% year-over-year.

Business outlook

The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. These statements do not give effect to the potential impact of mergers, acquisitions, divestitures or business combinations that may be announced or closed after the date hereof. These statements supersede all prior statements made by EMC regarding 2012 financial results.

All dollar amounts and percentages set forth below should be considered to be approximations.

* Consolidated revenues are expected to meet and potentially exceed $22 billion for 2012.

* Consolidated GAAP operating income is expected to be 17.5% of revenues for 2012 and consolidated non-GAAP operating income is expected to be 24% of revenues for 2012. Excluded from consolidated non-GAAP operating income are stock-based compensation expense, intangible asset amortisation, restructuring and acquisition-related charges and the amortisation of VMware's capitalised software from prior periods, which account for 4%, 1.5%, 0.5% and 0.5% of revenues, respectively.

* Total consolidated GAAP non-operating expense, which includes investment income, interest expense and other income and expense, is expected to be $225 million in 2012, and total consolidated non-GAAP non-operating expense is expected to be $220 million in 2012. Excluded from non-GAAP non-operating expense is stock-based compensation expense of $5 million.

* Consolidated GAAP net income attributable to EMC is expected to be $2.8 billion in 2012, and consolidated non-GAAP net income attributable to EMC is expected to be $3.8 billion in 2012. Excluded from consolidated non-GAAP net income attributable to EMC are stock-based compensation expense, intangible asset amortisation, restructuring and acquisition-related charges and the amortisation of VMware's capitalised software from prior periods, which account for $650 million, $230 million, $90 million and $30 million, respectively.

* Consolidated GAAP earnings per weighted average diluted share are expected to meet and potentially exceed $1.25 for 2012, and consolidated non-GAAP earnings per weighted average diluted share are expected to meet and potentially exceed $1.70 for 2012. Excluded from consolidated non-GAAP earnings per weighted average diluted share are stock-based compensation expense, intangible asset amortisation, restructuring and acquisition-related charges and the amortisation of VMware's capitalised software from prior periods, which account for $0.29, $0.11, $0.04 and $0.01 per weighted average diluted share, respectively.

* The consolidated GAAP income tax rate is expected to be 20% for 2012. Excluding the impact of stock-based compensation expense, intangible asset amortisation, restructuring and acquisition-related charges and the amortisation of VMware's capitalised software from prior periods, which collectively impact the tax rate by 1%, the consolidated non-GAAP income tax rate is expected to be 21% for 2012. This assumes that the US research and development tax credit for 2012 is extended in the fourth quarter of 2012.

* GAAP net income attributable to the non-controlling interest in VMware is expected to be $159 million and non-GAAP net income attributable to the non-controlling interest in VMware is expected to be $250 million for 2012. Excluded from non-GAAP net income attributable to the non-controlling interest in VMware are stock-based compensation expense, intangible asset amortisation and the amortisation of VMware's capitalised software from prior periods, which account for $72 million, $11 million and $8 million, respectively. The incremental dilution attributable to the shares of VMware held by EMC is expected to be $15 million for 2012.

* Consolidated net cash provided by operating activities is expected to be $6.2 billion for 2012 and free cash flow is expected to meet or potentially exceed $4.9 billion for 2012. Excluded from free cash flow are $900 million of additions to property, plant and equipment and $400 million of capitalised software development costs.

* The weighted average outstanding diluted shares are expected to be 2.22 billion for 2012.
* EMC expects to repurchase $700 million of the company's common stock in 2012.

Supporting resources
Visit http://ir.vmware.com for more information about VMware's first-quarter financial results.

EMC

EMC Corporation is a global leader in enabling businesses and service providers to transform their operations and deliver IT as a service. Fundamental to this transformation is cloud computing. Through innovative products and services, EMC accelerates the journey to cloud computing, helping IT departments to store, manage, protect and analyse their most valuable asset - information - in a more agile, trusted and cost-efficient way. Additional information about EMC can be found at www.EMC.com.

(1) Items excluded from the non-GAAP results for the first quarters of 2012 and 2011 are amounts relating to stock-based compensation expense, intangible asset amortisation, restructuring and acquisition-related charges and amortisation of VMware's capitalised software from prior periods. See attached schedules for GAAP to non-GAAP reconciliations.

(2) Free cash flow is a non-GAAP financial measure which is defined as net cash provided by operating activities, fewer additions to property, plant and equipment and capitalised software development costs. See attached schedules for a reconciliation of net cash provided by operating activities to free cash flow for the three months ended 31 March 2012 and 2011.

(3) EMC's mid-tier storage products include EMC VNX, EMC CLARiiON, EMC Celerra, EMC Centera, EMC Data Domain, EMC Isilon, EMC Avamar and EMC Atmos hardware and software products.

EMC, Atmos, Avamar, Celerra, Centera, CLARiiON, Data Domain, Greenplum, Isilon, RSA, Vblock, and VNX are either registered trademarks or trademarks of EMC Corporation in the United States and/or other countries. VMware is a registered trademark or trademark of VMware, Inc. in the United States and/or other countries. All other trademarks used are the property of their respective owners.

Forward-looking statements

This release contains “forward-looking statements” as defined under the Federal Securities Laws. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including but not limited to: (i) adverse changes in general economic or market conditions; (ii) delays or reductions in information technology spending; (iii) the relative and varying rates of product price and component cost declines and the volume and mixture of product and services revenues; (iv) competitive factors, including but not limited to pricing pressures and new product introductions; (v) component and product quality and availability; (vi) fluctuations in VMware, Inc.'s operating results and risks associated with trading of VMware stock; (vii) the transition to new products, the uncertainty of customer acceptance of new product offerings and rapid technological and market change; (viii) risks associated with managing the growth of our business, including risks associated with acquisitions and investments and the challenges and costs of integration, restructuring and achieving anticipated synergies; (ix) the ability to attract and retain highly qualified employees; (x) insufficient, excess or obsolete inventory; (xi) fluctuating currency exchange rates; (xii) threats and other disruptions to our secure data centres or networks; (xiii) our ability to protect our proprietary technology; (xiv) war or acts of terrorism; and (xv) other one-time events and other important factors disclosed previously and from time to time in EMC's filings with the US Securities and Exchange Commission. EMC disclaims any obligation to update any such forward-looking statements after the date of this release.

Use of non-GAAP financial measures

This release, the accompanying schedules and the additional content that is available on EMC's Web site contain non-GAAP financial measures. These non-GAAP financial measures, which are used as measures of EMC's performance or liquidity, should be considered in addition to, not as a substitute for, measures of EMC's financial performance or liquidity prepared in accordance with GAAP. EMC's non-GAAP financial measures may be defined differently from time to time and may be defined differently than similar terms used by other companies, and accordingly, care should be exercised in understanding how EMC defines its non-GAAP financial measures in this release.

Where specified in the accompanying schedules for various periods entitled: "Reconciliation of GAAP to Non-GAAP", certain items noted on each such specific schedule (including, where noted, amounts relating to stock-based compensation expense, intangible asset amortisation, restructuring and acquisition-related charges and the amortisation of VMware's capitalised software from prior periods) are excluded from the non-GAAP financial measures.

EMC's management uses the non-GAAP financial measures in the accompanying schedules to gain an understanding of EMC's comparative operating performance (when comparing such results with previous periods or forecasts) and future prospects and excludes the above-listed items from its internal financial statements for purposes of its internal budgets and each reporting segment's financial goals. These non-GAAP financial measures are used by EMC's management in their financial and operating decision-making because management believes they reflect EMC's ongoing business in a manner that allows meaningful period-to-period comparisons. EMC's management believes that these non-GAAP financial measures provide useful information to investors and others (a) in understanding and evaluating EMC's current operating performance and future prospects in the same manner as management does, if they so choose, and (b) in comparing in a consistent manner the company's current financial results with the company's past financial results.

This release also includes disclosures regarding free cash flow which is a non-GAAP financial measure. Free cash flow is defined as net cash provided by operating activities fewer additions to property, plant and equipment and capitalized software development costs. EMC uses free cash flow, among other measures, to evaluate the ability of its operations to generate cash that is available for purposes other than capital expenditures and capitalized software development costs. Management believes that information regarding free cash flow provides investors with an important perspective on the cash available to make strategic acquisitions and investments, repurchase shares, service debt and fund ongoing operations. As free cash flow is not a measure of liquidity calculated in accordance with GAAP, free cash flow should be considered in addition to, but not as a substitute for, the analysis provided in the statement of cash flows.

All of the foregoing non-GAAP financial measures have limitations. Specifically, the non-GAAP financial measures that exclude the items noted above do not include all items of income and expense that affect EMC's operations. Further, these non-GAAP financial measures are not prepared in accordance with GAAP, may not be comparable to non-GAAP financial measures used by other companies and do not reflect any benefit that such items may confer on EMC. Management compensates for these limitations by also considering EMC's financial results as determined in accordance with GAAP.

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