Forum List » Value Ideas and Strategies
Share and discuss value investing ideas and investing strategies.
New Topic
Goto Thread: PreviousNext
Goto: Forum ListMessage ListNew TopicLog In
EMC: A Cloud Play For Your Portfolio
Posted by: jaggom (IP Logged)
Date: April 30, 2014 09:31AM

EMC (EMC) is one of leaders in the data storage solutions segment and also extends its hands in facilitating various other services and products such as data warehousing, business intelligence, virtualization. Some of its products like EMC Atmos, Vblock, Mozy and Syncplicity have gained enough popularity globally and ranks at the top among the businesses moving to the cloud.

Quarterly performance

EMC has performed tremendously well in the recently reported second-quarter and saw decent growth across all segments of its business. As a result, its revenue increased 6% to $5.61 billion. The growth in revenue was mainly driven by the excellent information infrastructure business, Pivotal of VMware (VMW), which is a subsidiary of EMC. Pivotal is an amalgamation of various divisions and products from EMC and VMware.

EMC holds around 80% stake of VMware, which is a pioneer in virtualization software. VMware posted a handy revenue growth of 11% in the last reported quarter. Also its net income rolled up 28% to $244 million in the last reported quarter. Hence EMC benefited enormously through its subsidiary and the impact of the same was seen in the revenue and earnings of EMC. EMC’s domestic revenue rose 4% to $3 billion and its international revenue increased 8% to $2.7 billion, respectively.

On the other side, Pivotal offers a wide range of products such as Pivotal Labs, Cloud Foundry, Greenplum, Gem Fire, Cetas, Greenplum and Vfabix suit. Pivotal was formed with in-depth concentration on cloud applications, security applications system, and large scale data management systems. General Electric (GE) has also announced an investment of $105 million in Pivotal to further help its growth.

Global growth

EMC Corporation has recorded tremendous growth in its revenue in various regions across the world, with Asia Pacific and Latin America growing at 12%, while North America revenue accelerated 4%, and a 6% growth has been observed in the EMEA region. Also, EMC’s revenue grew around 18% in the BRIC nations.

In addition, the company anticipates total revenue of $23.5 billion for fiscal 2013, and an expected rise of 25.5% in non-GAAP operating margin. It expects cash flow of $6.8 billion from operating activities, and $5.5 billion free cash flow for the fiscal 2013. Besides, the company also plans to repurchase a total of $6 billion worth of shares by 2015 and this should have a positive effect on the EPS.

However, EMC projects healthy growth for its entire product portfolio for fiscal 2014 and expects to meet its estimates going forward. Moreover, its strategic investment in businesses likes XtremIO, ViPR and Pivotal must assist EMC in attaining its target.


EMC Corporation faces tough competition from its peers such as NetApp (NTAP) and Brocade Communications. NetApp provides IT-enabled service solutions likes’ data security, cloud solutions and data management system. However, NTAP has not performed well and its result doesn’t look very impressive. Its revenue just increased a minimal 0.8% to $1.71 billion, while its operating expenses rose 7.7% to $827.8 million from the year-ago quarter and as a result, its net income decreased 7.7% to $204.4 million. NetApp’s operating margin also declined.

Also, NetApp is very expensive at current levels. The company trades at a price-to-earnings multiple of almost 29x, while in comparison, EMC trades at a trailing P/E of 20. With quarterly revenue growth slowing down and earnings dropping, the valuation looks rich and investors are advised to stay away from NetApp.


EMC’s stake in VMware and the constant adoption of the cloud are expected to drive its growth in the future. Moreover, as seen above, the company is cheaper than peers such as NetApp and has a lucrative share repurchase plan in place. So, investors should consider putting their money in this stock if they are looking for a play on the cloud.

Stocks Discussed: EMC, VMW, NTAP,
Rate this post:

Rating: 0.0/5 (0 votes)

Sorry, only registered users may post in this forum.

Please Login if you have an account or Create a Free Account if you don't
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)

GF Chat