EMC’s Jekyll & Hyde Strategy Continues (EMC, VMW)

Print Email

EMC Corp. (NYSE: EMC) has been a love and hate relationship if you have hung in there since before, during, or after the VMware (NYSE: VMW) spin-off.  The company issued some great news after the close on the earnings front, but then gave the other side of the coin with bad news on the labor side.  The love and hate continues.

The storage giant said it will earn $0.23 to $0.24 EPS after a roughly4% revenue gain to $4.0 billion.  Analysts were looking for $0.23 EPSand $4.0 billion in revenues.  Right now, it is almost fabulous newsfor a technology stock to just meet its numbers.  But…

EMC also said that it will lay off about 7% of its workforce or some2,400 full-time workers.  The company said the move will reduceexpenses by $350 million in 2009 out of back-office operations andparing management ranks.  This will create a $200 million charge, whichwill take out about $0.10 from its EPS figures.  It will also have anadditional pre-tax charge of an additional $100 to $125 million overthe next two years.

Again, meeting estimates right now is great work.  But the layoffs onlysignal more and more push-backs from customers that will be ongoing.  Ifthe current climate was not affecting EMC’s longer-term horizon then itwould have just kept the workers on.  CEO Joe Tucci noted, "…Our goal is to position EMC for continued success throughout the downturn and for even greater success during the next economic growth cycle." The company gave no forward guidance.  It either is seeing customer push-backs or is reading the writing on the wall from others.  Either way, at best it is telling you that it has no visibility very far out on the calendar.

The company has proven over and over that it is willing to take along-term view, and these layoffs should offer you the insight thatmanagement believes will be the case for the foreseeable future.

Jon C. Ogg
January 7, 2009