EMC Earnings: VMWare And Lenovo’s Tie-Up Can Add To Growth

EMC (NYSE:EMC) is due to release its Q1 earnings on April 24. We expect revenues to clock mid single-digit growth driven by strength in storage segment and growth in VMware‘s (NYSE:EMC) revenues. EMC owns nearly 80% stake in VMware. Additionally, EMC is likely to benefit from its hardware tie-up with Lenovo to sell storage hardware in China and other Asian markets, and we will see this come into play this quarter. The company also aims to gain share of the high-growth, hosted web services market, which is dominated by Amazon. In Q4 2012, the company crossed the $6 billion revenue mark for the first time (Read EMC Still Has Room To Run Despite VMware’s Weak Results). Below we examine some of the key growth drivers.

See  our full analysis on EMC

VMware: Expecting Double-Digit Growth On Virtualization, Cloud Computing

VMware, one the leading desktop virtualization company, has seen strong growth on the back of growing virtualization demand. In its Q1 earnings, which will be announced on April 23, we expect it to continue to exhibit double-digit revenue growth, riding on demand from mobile desktop virtualization, the bring-your-own-device (BYOD) movement, big data analytics and enterprise social networking.

Please read our note Growing Virtualization and Cloud Computing To Drive VMware’s Q1 Earnings to get full details.

Hardware Business: Lenovo Tie-Up, XtremIO acquisition To Drive Growth

In the second half of 2012, EMC and Lenovo Group entered into a strategic partnership to resell storage equipment and servers made by EMC. Currently, they are testing their products in China before expanding to other locations. China is the world’s second largest economy and EMC will gain a foothold in this massive market through this partnership. The partnership will also open up markets outside of Asia for Lenovo, and will help it expand into products beyond personal computers in Asia. The companies have also formed a joint venture to sell storage equipment to small and mid-sized businesses. ^[1]

Further, EMC acquired XtremIO in mid 2012, to improve its flash memory storage offerings, and this should be reflected by growth in its high-end storage network. ^[2] In addition, through its Velocity program, the company has signed up major providers such as Verizon-Terremark, Singapore Telecommunications and AT&T to provide private cloud networks, and we expect these deals to bring additional revenues in Q1 and upcoming quarters in 2013.

The Pivotal Initiative Provides New Growth Opportunities

In an attempt to gain market share of the $2 billion and rapidly growing hosted web services market, EMC and VMware have announced the Pivotal Initiative led by Paul Maritz, Chief Strategy Officer of EMC. The companies will commit key technologies, people and programs to focus on Big Data and Cloud Application Platforms. This market is currently dominated by Amazon (NASDAQ:AMZN) with its Amazon Web Services, Microsoft‘s (NASDAQ:MSFT) Azure Cloud and Google Cloud Platfrom. ^[3] This will enable EMC and VMware to focus on their core competencies while pursuing the growing cloud services market.

We have a $40 Trefis price estimate for EMC, which is almost 100% premium to the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Lenovo Forges Ties With EMC, www.businessweek.com, Aug 1, 2012 [↩]
2. EMC Acquires XtremIO, EMC, May 10 2012 [↩]
3. The Pivotal Initiative, VMware, Dec 4 2012 [↩]