VMware, Inc. (VMW): These Are Pivotal Times for EMC Corporation (EMC)

Page 1 of 2

VMware, Inc. (NYSE:VMW)Investors of storage giant EMC Corporation (NYSE:EMC) were not pleased after management came out with lower guidance for fiscal 2013. I felt this was more the result of potential struggles with VMware, Inc. (NYSE:VMW), which is 80% owned by EMC Corporation (NYSE:EMC), than it was with EMC itself. But it didn’t matter. The Street reacted, and the stock got punished.

However, given the state of the hardware market, EMC’s outlook wasn’t really that bad. And there was plenty of evidence that the company was winning the storages war despite recent pricing pressure from rivals such as International Business Machines Corp. (NYSE:IBM) and Hewlett-Packard Company (NYSE:HPQ). But, following a recent “strategy day” with analysts, EMC Corporation (NYSE:EMC) seems poised for stronger growth down the road. And patient investors will be rewarded.

Change we can believe in
Bears remain fearful that the storage/cloud market will remain turbulent for at least 2013. In many respects, they’re right. But EMC has never gotten its due credit for its ability to quickly adapt to changing trends. A perfect example was the company’s recent announcement to spin-off areas of the business that, while strong in performance, were getting lost in the shuffle. By creating a separate entity, EMC feels that more value can be realized.

The company calls it “the pivotal initiative,” which is, essentially, a group of assets that includes data analytics, cloud computing, and Bid Data. Although management has not fully disclosed how the new company will be structured, it did say that Paul Maritz, who is VMware, Inc. (NYSE:VMW)’s former CEO and has been running the Pivotal inside of EMC, will remain at the helm following the spin-off. The company also said that Pivotal will be jointly owned with VMware, Inc. (NYSE:VMW), which will take up 31% of Pivotal, while EMC Corporation (NYSE:EMC) will absorb the 69% majority.

EMC’s Greenplum and Pivotal Labs assets will be the major contributors of the operation, while VMware, Inc. (NYSE:VMW) will put in its Cloud Foundry, Cetas, Spring, and Gemfire groups. Analysts love the idea. Brian White of Topeka Capital Markets, who has a buy rating on EMC with a $30 price target, said that Pivotal is expected to have $300 million in revenue this year. He also projected that the total available market for Big Data, which is currently $6 billion this year, can grow to $17 billion by 2016. In other words, although EMC doesn’t look like a stock that can ring in sizable gains this year, there is still plenty to love with the company in the long-term.

How much better will this make EMC?
While there is no doubt that EMC is the dominant force in storage, it’s not as if the competition is just going to roll over. And I think management understands this. To that end, EMC projected just 8% revenue growth for fiscal 2013. Management also warned that revenue growth for the first half of this year will arrive slightly below 8%, while the second half will make up the difference.

However, that’s not to suggest that management was down on its capabilities. Much of the downbeat guidance has to do with what is still a weak IT spending environment. And even then, EMC is still outperforming rivals like NetApp Inc. (NASDAQ:NTAP) in key markets. For instance, in the most recent quarter, EMC Corporation (NYSE:EMC) posted a 6% increase in its high-end product sales, which also jumped 14% sequentially. Meanwhile, NetApp’s total revenue for the quarter arrived up 4%, with 0.18% decline in product revenue.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!