EMC (EMC, Financial) is making smart moves to completely integrate products and services of VCE into its portfolio. This should assist the company to tap additional share in converged infrastructure market segment. EMC is already observing strong demand for VCF’s Vblock and Vblock linked products and services. These products had incredible demand of approximately $2.0 billion annual run rate in the last reported quarter. In fact, the company witnessed more than 50% growth in demand for these products in consecutive six quarters.
Further, EMC is engaged tactically to invest in VCE and continues to enlarge its products and linked services to become converged infrastructure system integration and enterprise hybrid solutions or ARM of the company. This should help the company to tap growing demand for its Vblock and Vblock associated products and services effectively. EMC is certainly excited about the growth potential VCE brings to its product portfolio. It expects VCE to play a large role in its EPS growth beyond 2015. However, the company sees a neutral impact of VCE to its EPS growth this year.
Strong growth momentum across segments
EMC is experiencing strong growth momentum across the board. Its segments such as Emerging storage, VMware and Pivotal look pretty promising ahead. Its emerging storage solutions like EMC XtremIO, EMC ViPR and EMC Scale IO are gaining incredible traction in the market. Also, the company has recently rolled over snapshot and compression, which are accelerating deployment for XtremIO for database.
These solutions are not only helping the customers to bridge their existing and next generation workloads but also are driving EMC’s growth in flash, software defined storage and Hadoop. Also, with growing adoption of software defined datacenters and big data applications should lead to better growth prospects in the future. EMC is getting benefit of quick investment into data centre with established leading solutions. Emerging storage grew about 47% year-on-year basis in the third quarter.
In addition, the company is effectively leveraging a combination of technologies such as EMC II, VMware, and Pivotal. These partnerships have advanced its growth prospects in IT as-a-service and platform as-a-service fields. Moreover, it has recently launched The Federation Software-Defined Data Centre. The company additionally remains on track to launch virtual desktop, enterprise Data Lake, platform-as-a-service, and security analytics in near future. These engineered solutions will certainly create incredible growth opportunities for the company as customers will get benefit from the combination of products across the ENC entities in the future. This should undeniable drive its profitability and create value for its shareholders going forward.
In fact, the company has recently won quite potential customers across the world leveraging this combination of technologies. For instance, a U.S.-based healthcare provider building out IT as a service on its Big Data analytics platform. Also, a Canadian oil company recently opted for deploying its hybrid Cloud solutions and a Chinese service provider picked its security-as-a-service offering to build out its platform. VMware and Pivotal grew 17% and 27% respectively year-on-year basis in the third quarter.
Updated guidance
EMC has released soft guidance for the full year. It now expects revenue of approximately $24.5 billion, up almost 6% over 2013. The company has reduced its revenue guidance by $75 million due to currency headwinds. Also, its earnings are forecasted to be at $1.90 per share for the full fiscal year 2014. The Wall Street is estimating earnings of $1.91 for the full year.
Conclusion
EMC is making strong progress with plenty of potential moves that should accelerate its show in the future. Its earnings are pressurized due to investment in rising infrastructure solutions like big data, NAND and virtualization. However, it offers attractive returns in the long-run as its earnings are estimated to grow at CAGR of 10.08% for the next five years.
The stock is currently being traded at the trailing P/E of 23.87 and forward P/E of 13.89 that indicate cheap valuation for the company that has tremendous growth potential in the future. Also, its PEG ratio of 1.56 continues to support its growth for the next five years. It has profit and operating profit margins of 10.76% and 17.21% respectively for the last twelve months. Its balance sheet carries total cash of $8.15 billion, which is quite sufficient to cover its entire debt of $5.49 billion. It has operating cash flow of $6.48 billion and leverage free cash flow of $4.47 billion.
