Krista Macomber, senior analyst at TBR, says EMC targets strategic markets and profitability as it prepares to be acquired by Dell.
EMC said its consolidated revenue was $6 billion in Q2 2016. Since EMC will be purchased by the privately-held Dell, the storage company did not share additional details on the Q2 result.
Joe Tucci, chairman and CEO of EMC, said: “We had a strong second quarter and are well positioned as we look forward to combining with Dell to establish the world’s largest privately-controlled, integrated technology company.”
Demand for the EMC all-flash array portfolio grew 100 percent. Demand for Virtustream Enterprise Cloud services grew triple digits. Demand for EMC’s Converged Infrastructure portfolio grew 40 percent. Demand for the Enterprise Hybrid Cloud Solution in the first-half of 2016 grew 178 percent.
VMware second-quarter revenue within EMC was $1.68 billion, up 11 percent. Pivotal revenue was up 49 percent.
Krista Macomber, senior analyst at TBR, says EMC reported strategic successes during Q2 2016 it can build from as it continues toward its landmark expected integration into Dell. After a full year of bottom-line declines during 2015, EMC notched a second consecutive quarter of year-to-year net income improvements during Q2 2016, rising 160 basis points to 9.7 percent, supported in part by cost restructuring initiatives but also by heightened monetization of investment in strategic solutions areas.
Revenues within EMC’s core storage business, EMC Information Infrastructure (EMC II), continued to struggle against evaporating demand for high-end, stand-alone spinning disk arrays, shrinking 4 percent during Q2 2016. However, declines lessened compared to the prior two quarters as EMC’s broad hardware portfolio refresh during H1 2016 sharpened its ability to accommodate burgeoning customer demand for faster and more efficient performance of data-intensive workloads, as well as reduced storage management and complexity.
EMC reported that demand for its all-flash array offerings grew 100 percent, exceeding a $2 billion annual run rate, and that demand for its converged infrastructure grew 40 percent, buoyed by adoption of EMC’s revamped hyperconverged portfolio. TBR considers these success points crucial, as we anticipate a tipping point in storage industry revenues to flash-based solutions by 2020, and expect global hyperconverged revenues to grow at a 50 percent CAGR from 2015 to 2020.
In addition to slowing declines to core hardware revenue pools, EMC’s foray into next-generation data centers is enabling the vendor to make incremental progress in shifting its differentiation and revenue base toward more profitable and sticky software and services offerings; EMC noted that demand for its Virtustream Enterprise Cloud managed services grew by triple-digits year-to-year during Q2 2016, albeit from what TBR believes was a small base compared to pieces of EMC’s portfolio that have longer-standing tenure in the market.
TBR recognizes EMC’s positive momentum, but also substantial headwinds to overcome during the next 12 to 24 months. As the company continues its push into cloud-native applications, it will encounter increased challenges as a result of its limited history competing as a stand-alone software vendor and as a provider of high-value services—as well as due to VMware’s spotty history in providing public cloud services. Especially considering Dell’s plans to sell the majority of its own services and software assets, there is substantial pressure on EMC to collaborate closely with Dell to overcome these challenges.
TBR sees opportunity for EMC to tap Dell’s Boomi integration platform and know-how in efficient manufacturing of standards-based systems to improve its ability to cultivate hybrid cloud infrastructure for born-on-the-cloud applications. The combined company’s keys to success are overcoming uncertainty and executive changeover in the channel, and keeping a sharp eye to careful management of alliances with third-party technology and service provider partnerships – beyond the challenges of integrating disparate technologies and direct selling cultures.
Kevin Collupy, analyst at TBR, says EMC Services revenue erodes as a changing IT landscape negatively impact performance ahead of its planned acquisition by Dell.
The proposed acquisition of EMC, announced in October by Dell is leading to substantial changes at both companies. A seamless integration will be crucial for the new company, Dell Technologies to gain momentum in an ever-evolving IT landscape.
TBR estimates EMC’s services revenue (within EMC II, excluding software maintenance) increased 2.2 percent to $1.11 billion in 2Q16, while EMC corporate revenue grew 0.05 percent in the same period. Pressures on EMC’s product lines due to industry wide commoditization require EMC to increasingly attach margin accretive support services and software to offset pressures.
Innovation around digital transformations and data migration underpin EMC Services approach in becoming a solutions provider.
EMC’s Global Services announced its Intelligent Data Mobility (IDM), a new approach for EMC Services to migrate client’s data in a faster, more flexible and less disruptive way. EMC uses a standardized factory model that we expect will drive efficiency and strengthen margins as IDM is platform and vendor agnostic, broadening its addressable market.
IDM is a three phase factory model; discover, plan, and execute, that can be tailored to meet a particular clients business needs. EMC Services will employ its team of over 2,500 data mobility experts and leverage its E-Lab, an interoperability testing and validation engine that can reduce server remediation. This off-the-shelf data migration tool will appeal to prospective clients, and is more in-line with what competitors Dell with its ProSupport and ProDeploy offerings and similar to HPE’s out-of-the-box solutions adaptable to many industries.
Leaning on its innovative hardware roots, EMC Services will rely on technological advancements to capitalize on digital transformations.
With digital transformation capabilities becoming an increasingly important role to IT vendors, EMC continue to focus on improving its competencies in this area. EMC Services is providing big data vision workshops, hybrid cloud integration and management, data center consolidation and migration, and application profiling analysis. These services will be reliant on the technological innovation behind the products released, as EMC’s differentiation stems from its products.
EMC will continue to lead with technology just as it has with two recent examples with both NBC and PAREXEL International. NBC has announced that EMC and Presidio will be providing IT storage for the 2016 Summer Olympics, using EMC’s Isilon while Presidio will be providing design, implementation, delivery and support for the digital content management solution.
