(Bloomberg) -- EMC Corp. reported a decline in earnings, in line with analysts’ estimates, in a slowing market for storage devices, as it cuts jobs and moves forward with a planned $67 billion takeover by Dell Inc.
Fourth-quarter profit excluding certain costs slipped 10 percent to $1.27 billion, or 65 cents a share, EMC said in a filing Wednesday. Revenue was little changed from a year earlier at $7 billion. Analysts on average had projected profit of 65 cents and sales of $7.12 billion, according to data compiled by Bloomberg.
EMC is grappling with slowing growth for its older and pricier products as it tries to shift to newer models like those based on flash storage. EMC, the largest storage maker, in July said it would reduce costs by $850 million a year starting in 2017 and is cutting jobs at a cost of $250 million as part of that program. The The Hopkinton, Massachusetts-based company also is facing changing demands from customers who prefer to rent storage from cloud vendors, such as Amazon.com Inc., than to buy their own devices.
"The fundamentals are not great for EMC," said Abhey Lamba, an analyst at Mizuho Securities USA Inc." Storage is not doing well and VMware Inc. is their crown jewel and their fundamentals are not great either. "
EMC’s fourth-quarter results were boosted by better-than- expected sales and profit at VMware., where new products like networking software bolstered results. Still, VMware, which is 81 percent owned by EMC, on Tuesday forecast profit and sales for 2016 that may miss estimates, hurt by a transition to new products that’s moving more slowly than anticipated. VMware shares fell as much as 13 percent in extended trading.
Dell’s planned purchase, the biggest technology acquisition ever, will combine EMC’s dominance in storage devices with closely held Dell’s No. 2 position in servers, the powerful machines that run corporate computing. EMC’s fourth-quarter net income was $771 million, or 39 cents a share, compared with $1.15 billion, or 56 cents, a year earlier.
Chief Executive Officer Joe Tucci said progress in closing the merger with Dell “remains on track under the original terms and timeline.” Employees from both companies are “embracing the combination,” he said on a conference call to discuss earnings.
EMC’s shares have declined 14 percent since the acquisition was announced on Oct. 12 and are now trading near the $24.05 value of the cash portion of the deal, which also includes stock that tracks the value of VMware, whose shares have plummeted more than 40 percent since then. The stock fell 1.1 percent to $24.04 at 10:11 a.m. in New York Wednesday.
Amid an increase in global macroeconomic concerns, Dell may experience a rise in the potential cost of the debt it’s taking on to buy EMC or increased risk to Dell’s ability to secure the financing, Macquarie Research analyst Rajesh Ghai wrote in a Jan. 24 note. Ghai suggested EMC should agree to reprice the deal to $28 a share from $33 to increase the likelihood it can be completed.
Concerns among investors that Dell may try to lower the price for EMC are weighing on EMC shares, according to Lamba.
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