IBM, EMC and VMware Report

 

IBM Corp. reported an 11 percent decline in sales but only a one percent drop in quarterly profits. Meanwhile, EMC Corp. posted a 9.2 percent slump in revenues and a 23 percent plunge in profits while VMware Inc. registered a seven percent growth for its first quarter but warned that its revenues would be flat or down compared to the prior year's second quarter results. VMware blamed the shortfall on its transition to VMware vSphere 4.

Focal Points:

• IBM posted its first quarter financial results. The company had first quarter revenues of $21.7 billion, down 11.4 percent from the previous year's quarter of $24.5 billion. On a GAAP basis, net income shrank one percent year-over-year to $2.3 billion, while earnings per share rose to $1.70 per share on a fully diluted basis due to fewer shares outstanding. The Global Business Services and Global Technology Services units saw their revenues decline by 10 percent to $4.4 billion and $8.8 billion respectively from the previous year's quarter. The Software Group experienced a six percent drop in revenues to $4.5 billion while the Systems and Technology Group reported a 23.5 percent fall in sales to $3.2 billion. IBM's Global Financing unit saw a nine percent decline year-over-year to $0.6 billion.
• EMC reported that first quarter revenues of $3.15 billion, a drop of 9.2 percent year-over-year. Net income on a GAAP basis came in at $194.1 million versus $251.6 million for the first quarter of 2008. EMC’s Information Infrastructure business, which consists of Information Storage, RSA Security, and Content Management & Archiving, posted revenues of $1.7 billion in product sales and $1.0 billion in services. Additionally, VMware contributed $470 million to first quarter revenues. EMC saw its largest drop in revenues come from North America, which posted a 16 percent decline.
• VMware's first quarter revenues increased seven percent over the previous year to $470 million. On a GAAP basis net income for the first quarter was $69.9 million, an increase of 62 percent, compared to $43.1 million for the first quarter of 2008. First quarter services revenues were $213.3 million, a 48 percent increase from last year, and represented 45 percent of total revenues compared with 33 percent in the year ago quarter. VMware warned that it expects its second quarter revenues to be flat or down relative to second quarter of 2008, when it booked $456 million in revenues due to its transition to vSphere 4. The new release is a major update to its server management tools, which form the bulk of its revenues. The company says the new release with the repackaging of its tools into suites and a delay for IT vendors' tests of their products with its new software will cause a disruption of sales in the second quarter.

Experton Group believes the global economic slump accompanied by stiff competition has finally trimmed the IT sales of the heretofore impenetrable leaders.

However, the downtrend will be short-lived, as the demand for their products and services will be strong even though the economy remains weak. Nonetheless, IT executives can expect the vendors to cut prices where necessary to hold or gain market share. Dell Inc., EMC, Hewlett-Packard Co. and IBM will aggressively go after Sun's business while VMware will cut prices and reposition products to fend off Citrix Systems Inc. and Microsoft Corp. IT executives should take advantage of the turbulent times and negotiate forward-looking deals that give them favorable prices, service levels, and terms and conditions while vendors still feel vulnerable enough to accept them.