Job cuts at EMC slow down sales in Q1

Storage giant misses Wall Street expectations, partly due to staff cuts and problems in Russia and China

EMC has said swinging the axe on 1,500 staff was partly to blame for it missing its own and analysts' expectations in Q1, as it warns investors of the threat posed by foreign exchange issues.

For the three months to 31 March, net profit at EMC fell by a third annually to $291m (£194m) on revenue which over the same period rose two per cent to $5.6bn, missing analysts' expectations of $5.74bn.

The company missed its own sales expectations for storage sales by $75m, partly down to its decision to axe 1,500 staff during the quarter.

EMC Information Infrastructure (II) chief executive David Goulden said it was one of three factors which weighed down storage sales.

"Many key areas of our portfolio continue to show great traction growth, but storage product revenue was approximately $75m below our expectations due to three factors with roughly equal weighting," he said on a call transcribed by Seeking Alpha.

"The first was weakness in Russia due to the economy and currency headwinds, and also in China due to increased scrutiny of US technology purchases in the government and financial services sectors.

"The second was due to some customers waiting for an anticipated major product announcement in the high end of our backup and recovery portfolio. And the third was due to a slower start than we would have liked on the go-to-market side of our business due to the impact of the approximately 1,500 positions we eliminated across EMC II in Q1."

EMC's North Americas business grew five per cent year on year and over the same period, while its EMEA unit's sales fell two per cent, although in constant currency it was up five per cent.

EMC's chief financial officer Zane Rowe said currency issues will be a long-term drag on the business.

"The incremental FX [foreign exchange] changes during the quarter did not have a material impact on our quarterly results due to the effectiveness of our hedging programme," he said. "However, current FX rates are expected to further reduce our 2015 revenue by approximately $400m."

The question of how long EMC's chief executive Joe Tucci will remain in the top job has been circulating for a long time now, and on the earnings call, Tucci said a succession process was "in place".

"As to CEO succession, the first and most important thing that I want you to know is that I love this company," he said. "I believe in its mission and bright future, and I am fully engaged and enjoying coming to work every day. I am traveling to see customers more than ever, and I am spending time on strategy, federation alignment, and on assuring we create long-term shareholder value.

"I also assure you that our board is very active, is in full alignment with our strategy, has a robust succession process in place, and is squarely focused on creating value for you, our shareholders."