Against a gloomy backdrop of cuts in IT spending and growing industry layoffs, recent relatively healthy numbers revealed in the quarterly results from top corporate data storage gear producer EMC Corp. (NYSE:EMC) were generally overlooked as nervous investors waited for word from the company regarding its prospects for the coming year.
CEO Silence Prompts Stock Selloff
However, CEO Joseph Tucci's unwillingness to provide analysts with guidance for the first quarter of 2009 may have left them with the unintended impression that the kick-off quarter could see a really ugly deceleration in the company's business. These concerns appeared to prompt a mini selloff in the shares, which dipped 3% following the announcement. They had earlier been down as much as 4%.
Slowdown in Key Product Sales
The overall numbers for the latest quarter weren't particularly bad; revenues were up 5% to over $4 billion and EPS, excluding restructuring charges, came in at 24 cents a share - a tick better than the 23 cents analysts had been expecting. However, looking a little deeper, there was evidence that sales of the company's key storage products had decelerated significantly in the latest quarter. While up 10% for the year, sales of information storage products were up only 4% on a year-over year basis in the final quarter. That's not an overly healthy rate of revenue growth when compared to the 21% reported by rival storage maker Sun Microsystems (NASDAQ:JAVA) in its latest quarter for its open storage product line.
Does the tight-lipped stance taken by EMC management suggest the worst is yet to come?
Tech Sector Bracing for Tough Times
Right now, the consensus view appears to be that a significant but manageable downturn is in the cards.
Recently, market research firm Forrester Research forecast that global IT purchases would drop by only 3% in 2009 before rebounding by 9% in 2010. However, the recent dramatic wave of layoffs announced by some of the industry's giants calls this relatively benign outlook into question.
After Sun Microsystems and Hewlett-Packard (NYSE:HPQ) got the layoff ball rolling during the fourth quarter of last year, the rest of the industry appeared to wait until this month to pull the plug on thousands employees. So far in January, EMC, Intel (NASDAQ:INTC), Microsoft (NASDAQ:MSFT), IBM (NYSE:IBM) and Texas Instruments (NYSE:TXN) have announced sizable job cuts. (For related reading, see The Layoff Payoff: A Severance Package.)
The Final Word
After last year's relatively strong spending increase of 8%, it's unlikely that 2009's IT spending slump will trough after just a 3% dip. That's likely to keep the sector underperforming for at least another couple of quarters.
