11 March 2010
Thursday
EMC cuts costs with employee pay cuts
By Beth Pariseau | Apr 24, 2009
0 comments
Facebook
LinkedIn
Digg
Email
PrintThe global economic downturn hit EMC Corp. last quarter, as the storage giant reported that its revenues declined 9% and profit declined 23% compared to a year ago.
EMC CEO and president Joe Tucci said there'll be no more layoffs beyond the 2,400 announced at the start of the year, but he has asked employees to take a 5% pay cut for the remainder of the year.
Tucci said he thinks IT spending has hit the bottom and that storage has been affected less than the network and server areas, but EMC execs don't forecast an uptick until the third quarter.
EMC's first quarter revenue of $3.15 billion was down from $3.4 billion in the same quarter a year ago, and below the company's internal goal of $3.2 billion. Net income was $194.1 million, down from $251.6 million in last year's first quarter.
"I believe we are at or near the bottom" of IT spending for the year, Tucci said. "[The second quarter] will continue to be sluggish—a lot more predictable, but sluggish—there's a light at the end of the tunnel, but [customers] are likely to wait a bit and be cautious."
Tucci said he sent a letter out this morning "asking all EMC exempt employees to join management and take a temporary 5% salary cut." Tucci said the salary reductions are an effort to avoid more layoffs.
He said spending in January and February was "extremely slow" as many companies did not yet have their 2009 budgets set, and those who did had new policies requiring upper management approval on IT purchases. "This led to longer sales cycles and delayed and reduced deals," Tucci said.
"IT budgets are still tight and customers are only buying what they must have for today," he said. EMC is still predicting stabilization and the beginnings of recovery toward the end of 2009, but predicts IT spending for the year will be down in the "very high single digits to very low double digits."
By the fourth quarter there should be some signs of recovery, according to CFO David Goulden. "But we really don't have a handle on how big the uptick would be or when it would happen," he said.
Storage industry analysts took contrasting views on this outlook. "If we're watching the economy bottom out as we speak, there's probably going to be pent-up demand for infrastructure that will show up later this year," said John Webster, principal advisor at Nashua, N.H.-based Illuminata Inc. "People have projects they need to do, and they're not cancelled, just put off until they understand what the economy will be like."
On the other hand, Arun Taneja, founder and consulting analyst at Hopkinton, Mass.-based Taneja Group, pointed out that the decline has been felt by storage companies much later than the broader economy, which began its decline last fall. "My gut would say there's another quarter of decline before storage really starts to come back up," he said. "If there's a delay in decline on the front end, logic seems to dictate there'd be a delay in recovery on the back end."
Brian Babineau, senior analyst at Milford, Mass.-based Enterprise Strategy Group, said his firm expects spending to begin picking up around mid-year.
"Users may see budget flushes at the halfway point of the year in June, or at least have more insight," he said. "The second quarter could be good if things in June pick up."
