EMC, Intel, SAP, and VMware on the Move
Lead Analyst: Cal Braunstein
EMC Corp. announced preliminary second quarter financial results along with executive changes at EMC and its subsidiary, VMware Inc. In other financial news, Intel Corp. reported its second quarter results, which saw its earnings drop while SAP AG reported strong second quarter financials.
Focal Points:
- EMC and VMware made surprise announcements when word leaked out that VMware CEO Paul Maritz was being replaced. Joe Tucci, EMC Chairman and CEO stated the IT industry is in the midst of an extraordinary transformation unlike anything we have seen before – a major shift to Cloud Computing, Big Data applications and delivering IT-as-a-Service. To capitalize on this shift Pat Gelsinger, EMC President and COO of Information Infrastructure Products, has been appointed CEO of VMware while Paul Maritz is joining EMC as Chief Strategist, reporting to Tucci. Both changes are effective September 1st. David Goulden, Executive Vice President and CFO, will assume the additional roles of President and COO of EMC effective immediately. On the financial front, EMC announced preliminary second-quarter 2012 results with record second quarter consolidated revenues of approximately $5.31 billion, up 10 percent year-over-year. The company also had record second quarter non-GAAP earnings per weighted average diluted share (EPS) of $0.39, up 11 percent over the previous year's quarter. Meanwhile, VMware is projecting second quarter revenues of $1.123 billion, an increase of 22 percent from second quarter 2011.
- Intel reported second quarter revenues of $13.5 billion, up 3.6 percent year-over-year. Net income was $2.83 billion, down 4.3 percent from $2.95 billion a year earlier, as operating expenses rose faster than revenues. Consumer demand in North America and Western Europe is not recovering as fast as Intel expected, according to CEO Paul Otellini. He also stated growth in emerging markets such as China and Brazil is also slowing down. For the full fiscal year, Intel now expects sale to grow three to five percent from last year, rather than the "high single digit" level the company predicted earlier. He also noted that Ultrabooks are still relatively expensive but prices are expected to drop to $699 this fall.
- In the quarter just ending, SAP announced it had total revenues of €3.9 billion, an increase of 18 percent over the €3.3 billion booked in second quarter of 2011. The company booked €1.06 billion in new license sales, up 26 percent compared to the year-ago period when it reported €0.84 billion. Software and support revenues for the quarter came to €3.12 billion, a jump of 21 percent. On an IFRS accounting basis, operating profits only rose by 7 percent in the quarter to €920 million. The company boasted of posting its tenth consecutive quarter of double-digit growth in non-IFRS software and software-related service revenues. The company also claimed it had stellar results in SAP HANA, mobile and cloud computing in all regions.
RFG POV: The management teams at EMC and VMware continue to expand and execute their visions of the future of IT and deliver top-tier products and services in a timely manner. The removal of Paul Maritz at VMware was first thought to be a rare management error but once the total set of announcements was made, the logic was compelling. With Pat Gelsinger at the helm of VMware and Maritz as EMC's chief strategist, the companies should be able to keep up the double-digit growth momentum that the firms have delivered over the past few years. IT executives with strategic relationships with either or both companies should get a strategic update by yearend so that they can understand the new vision and determine how it fits with the corporation's strategy and target architecture. Given the slowing demand and the decline of PC sales, it is not surprising that Intel did not perform as well as it has in the past. Until the company gets its Ultrabook and Atom product lines selling well, growth will be diminished or possibly shrinking. Apple Inc. is a formidable competitor and its products are expected to take market share from Intel for the next few years. The company has made some very significant advances in driving data center efficiency internally and if it can get its customers to follow suit, it might be able to get data center product and services sales making up for the slack in PC revenues. IT executives should add Intel to the list of IT firms to talk to about slashing the cost of data center operations. SAP continues to plow on and remain a thorn in Oracle Corp.'s side. It has been able to revise its business model so that it can capture the new revenue streams without doing much damage to its traditional revenue routes. The company is well poised to address the new hot areas of cloud, mobile and high performance in-memory computing for business intelligence and analytics. IT executives should keep abreast of Oracle's and SAP's strategies and visions and, where appropriate, incorporate relevant components – and possibly products – into their future visions and target architectures.
Gray Clouds on the Horizon
Lead Analyst: Cal Braunstein
According to two recent studies global IT spending is slowing while cloud adoption (excluding service providers) is occurring at a slower rate than projected. Elsewhere, according to a report released by outplacement firm Challenger, Gray & Christmas, layoffs in the technology sector for the first half of 2012 are at the highest levels seen in three years. Lastly, an Oracle Corp. big data survey finds companies are collecting more data than ever before but may be losing on average 14 percent of incremental revenue per year by not fully leveraging the information.
Focal Points:
- According to a new Gartner Inc. report, global IT spending percentage growth for 2012 is projected to be 3.0 percent, down from 2011 spending growth of 7.9 percent. The brightest spot in the analysis was that the telecom equipment category will grow by 10.8 percent – however that is down from 17.5 percent in the previous year. All the other categories – computer hardware, enterprise software, IT services, and telecom services – are growing slowly between 1.4 percent (telecom services) and 4.3 percent (enterprise software). The drop in spending is attributed to the global economic stresses – the eurozone crisis, weaker U.S. recovery, a slowdown in China, etc. For 2013 Gartner is projecting higher spending on hardware and software in the data center and on the desktop, better growth on telecom hardware (but down from 2012), and slightly higher spending on telecom services. In support of these projections is the latest Challenger, Gray report that shows during the first half of the year, 51,529 planned job cuts were announced across the tech sector. This represents a 260 percent increase over the 14,308 layoffs planned during the first half of 2011. Job cuts are so steep this year that the figure is 39 percent higher than all the job cuts recorded in the tech sector last year. Three tech companies are responsible for most of the job losses – Hewlett-Packard Co. (HP) announced it was slicing headcount by 30,000 and Nokia Corp. and Sony Corp. are each reducing staffing by 10,000. While the outplacement firm expected more cuts to be made over the course of the next six months, it does see bright spots in sectors of the business.
- According to Uptime Institute's recently released 2012 Data Center Industry Survey, cloud deployments have significantly increased globally over the past year. 25 percent of this year's respondents claimed they were adopting public clouds while another 30 percent said they were considering it. Additionally, 49 percent were moving to private clouds while another 37 percent were considering it. In 2011 only 16 percent of respondents stated they had deployed public clouds whereas 35 percent claimed they had deployed private clouds. 32 percent of large organizations use the public cloud, whereas 19 percent of small organizations and 10 percent of "traditional enterprises" employ public clouds. When it comes to private clouds, 65 percent of large organizations have claimed to have deployed private cloud but only 39 percent of small and mid-sized organizations were doing so. Public cloud adoption rates are 52 percent in Asia, 28 percent in Europe, and 22 percent in North America. Private cloud adoption rates are 42 percent in Asia, 52 percent in Europe, and 50 percent in the U.S. Cost savings and scalability were the top two reasons given for moving to the cloud while security was the major inhibitor for not adopting cloud computing (27 and 23 percent respectively), followed distantly by compliance and regulatory issues (64 and 27 percent respectively).
- Oracle announced the results of its big data study, in which 333 C-level executives from U.S. and Canadian enterprises were surveyed. The study examined the pain points that companies face regarding managing the deluge of data that organizations must deal with and how well they are using that information to drive profit and growth. 94 percent of respondents claimed growth with the biggest data growth areas in the areas of customer information (48 percent), operations (34 percent) and sales and marketing (33 percent). 29 percent of executives give their organization a "D" or "F" in preparedness to manage the data influx, while 93 percent of respondents believe their organization is losing revenue opportunities. The projected revenue loss for companies with revenues in excess of $1 billion is estimated to be approximately 13 percent of annual revenue from not fully leveraging the information. Most respondents are frustrated with their organizations' data gathering and distribution systems and almost all are looking to invest in improving information optimization. The communications industry is the most satisfied with its ability to deal with data – 20 percent gave their firms an "A." Executives in public sector, healthcare and utilities industries stated they were the least prepared to handle the data volumes and velocities. 41 percent of public sector executives, 40 percent of healthcare executives, and 39 percent of utilities executives rating themselves with either a "D" or "F" preparedness rating.
RFG POV: The global economic appears to be weak, with parts of Europe in or close to recession, Asia slowing rapidly, and the U.S. in weak positive territory. Economists see more storm clouds on the horizon – few see things improving in 2012. This will trickle down to IT budgets, with many companies requesting deferrals of capital spending and/or headcount growth. IT executives need to continue their push to slash operational expenditures through better resource optimization and improvements in best practices. RFG still finds a most IT executives pursue practices that are no longer valid, which results in up to 40 percent of operational expenditures being wasted. Cloud computing can assist enterprises in their quest to reduce costs but there are tradeoffs and they need to be understood before leaping into a cloud environment. Most corporate data is no longer an island and needs to be integrated with applications and systems that already exist. Thus, before moving to an off-premise cloud environment, IT executives should ensure that the cloud environment and the data are well integrated into existing systems and that the risk exposure is acceptable. There is no doubt that big data is coming and the volumes and velocity of change will only get worse as time marches on. The systems required to handle the increased influx of data may not look like those that exist in the data center today. It is conceivable that the big data and its incorporation into day-to-day operations could require an entirely new data center architecture. Business and IT executives should strategize on how to deliver on their goals and vision, and find a way to work together to transform their shops to address the new ways of conducting business and processing data while staying within budgetary constraints.