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Press Release

EMC Reports 19% Increase in Second-Quarter Profit; Achieves 10% Growth in Quarterly Revenue

EMC Delivers 10th Consecutive Quarter of Double-Digit Year-Over-Year Growth for Revenue, GAAP net income, and GAAP and non-GAAP EPS

Story Highlights

Second-Quarter Highlights:

  • Consolidated revenue up 10% year over year
  • GAAP net income up 19% year over year; GAAP EPS up 21%
  • Non-GAAP EPS up 11%
  • Operating cash flow up 16% year over year; Free cash flow up 36%
  • Strong percentage increases in gross and operating margins
HOPKINTON, Mass., July 24, 2012 - 

EMC Corporation (NYSE:EMC) today reported strong financial results for the second quarter of 2012, marking the company's 10th consecutive quarter of double-digit year-over-year growth for consolidated revenue, GAAP net income, and GAAP and non-GAAP EPS. EMC expects to achieve its full-year 2012 goals for consolidated revenue, non-GAAP EPS and free cash flow.

Second-quarter consolidated revenue was $5.31 billion, an increase of 10% compared with the year-ago quarter. Second-quarter GAAP net income attributable to EMC increased 19% year over year to $650 million. Second-quarter GAAP earnings per weighted average diluted share increased 21% year over year to $0.29. Second-quarter non-GAAP1 earnings per weighted average diluted share were $0.39, an increase of 11% year over year.

During the second quarter, EMC generated operating cash flow of $1.24 billion and free cash flow2 of $958 million, a year-over-year increase of 16% and 36%, respectively. Additionally, the company expanded GAAP and non-GAAP gross margin and operating margin percentages on a year-over-year basis, and ended the quarter with $10.9 billion in cash and investments.

Joe Tucci, EMC Chairman and Chief Executive Officer, said, "I am very pleased with EMC's execution and record second-quarter financial performance. We are seeing a transformation in the IT industry unlike anything we have seen before. Organizations are moving quickly to adopt cloud computing and take advantage of both the efficiency and agility that comes with running IT-as-a-Service. Customers are also looking to deploy a new generation of Big Data applications to gain competitive advantage and differentiate their businesses. And they demand that all this be done in a secure and trusted way. EMC is widely recognized as a leader and driver of this transformation."

David Goulden, EMC President and Chief Operating Officer, said, "The business we have built is at the intersection of three of the most transformative waves in the history of IT – cloud computing, Big Data and trust. We have grown EMC profitably, expanded our portfolio of products and services into new markets, and established our reputation for quality and providing customers with the very best total experience in the industry. Looking ahead, we remain on track to deliver our 'triple play' – simultaneously taking market share, reinvesting for growth and delivering improved earnings – and are well positioned for our next major phase of growth."

Second-Quarter Highlights

In the second quarter, revenue from EMC's Information Storage business increased 7% year over year. Within this, revenue from EMC's networked storage platforms portfolio3, which includes EMC's high-end and mid-tier storage platform products, grew 7% year over year. Revenue from EMC's high-end Symmetrix storage product portfolio increased 3% compared with the year-ago quarter, and revenue from the company's portfolio of mid-tier storage products4 increased 10% year over year, the result of year-over-year growth across EMC's major mid-tier product lines.

Second-quarter highlights included continued customer demand for EMC's Isilon scale-out NAS portfolio, VNX unified storage family, Backup Recovery Systems (BRS) portfolio, and VMAX systems family. Customers also continued to increasingly turn to EMC's Greenplum portfolio to gain greater insight and value from their data. Second-quarter revenue from EMC's RSA Information Security business increased 13% year over year and revenue from VMware (NYSE: VMW), the global leader in virtualization and cloud infrastructure, grew 22% year over year. Additionally, EMC continued to experience strong customer demand for its broad portfolio of services to help customers transform their IT and business. Finally, Vblock Converged Infrastructure Platforms from VCE – the Virtual Computing Environment Company formed by Cisco and EMC with investments from VMware and Intel – also gained traction in enterprise data centers and with cloud service providers as demand continued to show very strong growth in the second quarter.

EMC's consolidated second-quarter revenue from the United States increased 14% year over year to $2.9 billion, representing 54% of consolidated second-quarter revenue. Revenue from EMC's business operations outside of the United States increased 5% year over year to $2.5 billion and represented 46% of consolidated second-quarter revenue.

Business Outlook

The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. These statements do not give effect to the potential impact of mergers, acquisitions, divestitures or business combinations that have not been announced or closed as of the date hereof. These statements supersede all prior statements made by EMC regarding 2012 financial results.

All dollar amounts and percentages set forth below should be considered to be approximations.

  • Consolidated revenues are expected to be $22.0 billion for 2012.
  • Consolidated GAAP operating income is expected to be 17.5% of revenues for 2012 and consolidated non-GAAP operating income is expected to be 24% of revenues for 2012. Excluded from consolidated non-GAAP operating income are stock-based compensation expense, intangible asset amortization, restructuring and acquisition-related charges, the amortization of VMware's capitalized software from prior periods and a release of excess RSA special charge reserve, which account for 4%, 1.6%, 0.5%, 0.5% and (0.1%) of revenues, respectively.
  • Total consolidated GAAP non-operating expense, which includes investment income, interest expense and other income and expense, is expected to be $211 million in 2012 and total consolidated non-GAAP non-operating expense is expected to be $200 million in 2012. Excluded from non-GAAP non-operating expense is stock-based compensation expense of $3 million, a gain on strategic investment of ($32 million) and a loss on interest rate swaps of $40 million.
  • Consolidated GAAP net income attributable to EMC is expected to be $2.75 billion in 2012 and consolidated non-GAAP net income attributable to EMC is expected to be $3.75 billion in 2012. Excluded from consolidated non-GAAP net income attributable to EMC are stock-based compensation expense, intangible asset amortization, restructuring and acquisition-related charges, the amortization of VMware's capitalized software from prior periods, a release of excess RSA special charge reserve, a gain on strategic investment and a loss on interest rate swaps which account for $665 million, $245 million, $90 million, $30 million, ($18 million), ($32 million), and $24 million, respectively.
  • Consolidated GAAP earnings per weighted average diluted share are expected to be $1.25 for 2012 and consolidated non-GAAP earnings per weighted average diluted share are expected to be $1.70 for 2012. Excluded from consolidated non-GAAP earnings per weighted average diluted share are stock-based compensation expense, intangible asset amortization, restructuring and acquisition-related charges, the amortization of VMware's capitalized software from prior periods, a release of excess RSA special charge reserve, a gain on strategic investment and a loss on interest rate swaps, which account for $0.30, $0.11, $0.04, $0.01, ($0.01), ($0.01) and $0.01 per weighted average diluted share, respectively.
  • The consolidated GAAP income tax rate is expected to be 21% for 2012. Excluding the tax impact of stock-based compensation expense, intangible asset amortization, restructuring and acquisition-related charges, the amortization of VMware's capitalized software from prior periods, a release of excess RSA special charge reserve, a gain on strategic investment and a loss on interest rate swaps, which collectively impact the tax rate by 1%, the consolidated non-GAAP income tax rate is expected to be 22% for 2012. This assumes that the U.S. research and development tax credit for 2012 is extended in the fourth quarter of 2012.
  • GAAP net income attributable to the non-controlling interest in VMware is expected to be $148 million and non-GAAP net income attributable to the non-controlling interest in VMware is expected to be $250 million for 2012. Excluded from non-GAAP net income attributable to the non-controlling interest in VMware are stock-based compensation expense, intangible asset amortization, restructuring and acquisition-related charges and the amortization of VMware's capitalized software from prior periods, which account for $77 million, $16 million, $1 million and $8 million, respectively. The incremental dilution attributable to the shares of VMware held by EMC is expected to be $15 million for 2012.
  • Consolidated net cash provided by operating activities is expected to be $6.2 billion for 2012 and free cash flow is expected to be $4.9 billion for 2012. Excluded from free cash flow are $900 million of additions to property, plant and equipment and $400 million of capitalized software development costs.
  • The weighted average outstanding diluted shares are expected to be 2.2 billion for 2012.
  • EMC expects to repurchase $700 million of the company's common stock in 2012.

Supporting Resources

About EMC

EMC Corporation is a global leader in enabling businesses and service providers to transform their operations and deliver IT as a service. Fundamental to this transformation is cloud computing. Through innovative products and services, EMC accelerates the journey to cloud computing, helping IT departments to store, manage, protect and analyze their most valuable asset — information — in a more agile, trusted and cost-efficient way. Additional information about EMC can be found at www.EMC.com.

Press Contacts

Lesley Ogrodnick
508-293-6961
lesley.ogrodnick@emc.com

1Items excluded from the non-GAAP results for the second quarters of 2012 and 2011 are amounts relating to stock-based compensation expense, intangible asset amortization, restructuring and acquisition-related charges, the amortization of VMware's capitalized software from prior periods, the RSA special charge, a release of excess RSA special charge reserve, a gain on strategic investment and a loss on interest rate swaps. See attached schedules for GAAP to non-GAAP reconciliations.

2Free cash flow is a non-GAAP financial measure which is defined as net cash provided by operating activities, less additions to property, plant and equipment and capitalized software development costs. See attached schedules for a reconciliation of net cash provided by operating activities to free cash flow for the three months ended June 30, 2012 and 2011.

3 EMC's networked storage platforms include EMC Symmetrix, EMC VNX, EMC CLARiiON, EMC Celerra, EMC Centera, EMC Data Domain, EMC Isilon, EMC Avamar and EMC Atmos hardware and software products.

4EMC's mid-tier storage products include EMC VNX, EMC CLARiiON, EMC Celerra, EMC Centera, EMC Data Domain, EMC Isilon, EMC Avamar and EMC Atmos hardware and software products.

EMC, Atmos, Avamar, Celerra, Centera, CLARiiON, Data Domain, Greenplum, Isilon, RSA, Symmetrix, Vblock, VMAX, and VNX are either registered trademarks or trademarks of EMC Corporation in the United States and/or other countries. VMware is a registered trademark or trademark of VMware, Inc. in the United States and/or other countries. All other trademarks used are the property of their respective owners.

Forward-Looking Statements

This release contains "forward-looking statements" as defined under the Federal Securities Laws. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including but not limited to: (i) adverse changes in general economic or market conditions; (ii) delays or reductions in information technology spending; (iii) the relative and varying rates of product price and component cost declines and the volume and mixture of product and services revenues; (iv) competitive factors, including but not limited to pricing pressures and new product introductions; (v) component and product quality and availability; (vi) fluctuations in VMware, Inc.'s operating results and risks associated with trading of VMware stock; (vii) the transition to new products, the uncertainty of customer acceptance of new product offerings and rapid technological and market change; (viii) risks associated with managing the growth of our business, including risks associated with acquisitions and investments and the challenges and costs of integration, restructuring and achieving anticipated synergies; (ix) the ability to attract and retain highly qualified employees; (x) insufficient, excess or obsolete inventory; (xi) fluctuating currency exchange rates; (xii) threats and other disruptions to our secure data centers or networks; (xiii) our ability to protect our proprietary technology; (xiv) war or acts of terrorism; and (xv) other one-time events and other important factors disclosed previously and from time to time in EMC's filings with the U.S. Securities and Exchange Commission. EMC disclaims any obligation to update any such forward-looking statements after the date of this release.

Use of Non-GAAP Financial Measures

This release, the accompanying schedules and the additional content that is available on EMC's website contain non-GAAP financial measures. These non-GAAP financial measures, which are used as measures of EMC's performance or liquidity, should be considered in addition to, not as a substitute for, measures of EMC's financial performance or liquidity prepared in accordance with GAAP. EMC's non-GAAP financial measures may be defined differently from time to time and may be defined differently than similar terms used by other companies, and accordingly, care should be exercised in understanding how EMC defines its non-GAAP financial measures in this release.

Where specified in the accompanying schedules for various periods entitled "Reconciliation of GAAP to Non-GAAP," certain items noted on each such specific schedule (including, where noted, amounts relating to stock-based compensation expense, intangible asset amortization, restructuring and acquisition-related charges, the amortization of VMware's capitalized software from prior periods, a RSA special charge (release), a gain on strategic investment and a loss on interest rate swaps) are excluded from the non-GAAP financial measures.

EMC's management uses the non-GAAP financial measures in the accompanying schedules to gain an understanding of EMC's comparative operating performance (when comparing such results with previous periods or forecasts) and future prospects and excludes the above-listed items from its internal financial statements for purposes of its internal budgets and each reporting segment's financial goals. These non-GAAP financial measures are used by EMC's management in their financial and operating decision-making because management believes they reflect EMC's ongoing business in a manner that allows meaningful period-to-period comparisons. EMC's management believes that these non-GAAP financial measures provide useful information to investors and others (a) in understanding and evaluating EMC's current operating performance and future prospects in the same manner as management does, if they so choose, and (b) in comparing in a consistent manner the Company's current financial results with the Company's past financial results.

This release also includes disclosures regarding free cash flow which is a non-GAAP financial measure. Free cash flow is defined as net cash provided by operating activities less additions to property, plant and equipment and capitalized software development costs. EMC uses free cash flow, among other measures, to evaluate the ability of its operations to generate cash that is available for purposes other than capital expenditures and capitalized software development costs. Management believes that information regarding free cash flow provides investors with an important perspective on the cash available to make strategic acquisitions and investments, repurchase shares, service debt and fund ongoing operations. As free cash flow is not a measure of liquidity calculated in accordance with GAAP, free cash flow should be considered in addition to, but not as a substitute for, the analysis provided in the statement of cash flows.

All of the foregoing non-GAAP financial measures have limitations. Specifically, the non-GAAP financial measures that exclude the items noted above do not include all items of income and expense that affect EMC's operations. Further, these non-GAAP financial measures are not prepared in accordance with GAAP, may not be comparable to non-GAAP financial measures used by other companies and do not reflect any benefit that such items may confer on EMC. Management compensates for these limitations by also considering EMC's financial results as determined in accordance with GAAP.

Notes:
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