EMC Reports First Quarter Results; Seventh Consecutive Quarter of Doub

EMC Reports First Quarter Results; Seventh Consecutive Quarter of Double-Digit Revenue Growth; Software License and Maintenance Revenues 37% of Total

    Business Editors/High-Tech Editors

    HOPKINTON, Mass.--(BUSINESS WIRE)--April 19, 2005--EMC Corporation (NYSE:EMC) today reported financial results for the first quarter of 2005, achieving double-digit year-to-year revenue growth for the seventh consecutive quarter. EMC, the world leader in information storage and management, saw first-quarter growth driven by its market-leading mid-tier storage systems, expanding software business, and increasingly popular professional services.
    Total consolidated revenue for EMC's first quarter was $2.24 billion, 20% higher than the $1.87 billion reported for the first quarter of 2004. Net income for the quarter was $270 million or $.11 per diluted share, 93% higher than the $140 million or $.06 per diluted share reported for the first quarter of 2004.
    Joe Tucci, EMC's President and CEO, said, "EMC delivered its seventh quarter in a row of double-digit revenue growth, once again extending one of the strongest and steadiest growth stories in the tech industry today. Solid execution and the investments we have made to broaden our product and market reach played major roles in our ability to successfully navigate through a difficult first quarter."
    "Clearly, our acquisition strategy is bearing fruit, strengthening our core business and taking us into opportunity-rich adjacent markets," Tucci continued. "We are satisfying customers' demands with a product portfolio that is second to none and by leveraging our market leadership across all major segments of our business. We are using these combined strengths to greater and greater effect as our hardware, software and services offerings become even more tightly integrated and as we continue our new product introductions this year."
    Systems revenue grew 15% in the first quarter, compared with the year-ago quarter, to $1.03 billion, driven by strong, double-digit growth from the EMC CLARiiON, Celerra NAS and Centera platforms. Strong performances across each of EMC's software businesses grew software license and maintenance revenues 26% to $832 million in the first quarter, now representing 37% of total EMC revenues. Professional services, systems maintenance and other services revenue grew 26% to $375 million during the quarter, as customers around the globe turned to EMC to help manage the growing complexity of their information infrastructures.
    Bill Teuber, EMC's Executive Vice President and Chief Financial Officer, said, "Our tenth straight quarter of meeting or exceeding our major financial objectives places us firmly on track to deliver on our 2005 goals. During the quarter, we continued to execute well across the board, achieving double-digit growth in all three major business lines and all of our major geographic regions. We generated more than $600 million in cash from operations and used $380 million to acquire SMARTS and buy back 9.8 million shares of company stock. We were particularly pleased with our operating margins for the quarter, and we believe we are on course to end the year with operating margins in the high teens."

    First Quarter Highlights

    Demand for EMC's broad portfolio of tiered networked storage platforms and related software drove double-digit revenue growth across its platforms businesses in the first quarter. EMC CLARiiON networked storage revenues grew 47% year over year, posting solid growth across all major geographic regions, particularly Europe, and in each of EMC's direct and indirect channels. CLARiiON's fourth consecutive quarter of more than 40% revenue growth was driven by EMC's focus on delivering complete solutions that address the needs of midsize enterprises. EMC Celerra NAS systems revenue grew 40% during the quarter, the fifth consecutive quarter of more than 30% revenue growth. Customer deployments of the EMC Celerra NS Gateway filers and NS integrated products into tiered storage environments continued to drive market momentum for the industry's most comprehensive family of NAS solutions.
    The EMC Software Group reported revenues of $401 million in the first quarter, a year-over-year increase of 24%. Growth across the EMC Software Group's major categories was fueled by the tremendous value customers are realizing from the ability of EMC software to help them reduce operational costs and complexity and to comply with government regulations. Storage and Management Software license revenue, which includes EMC PowerPath, the EMC ControlCenter and EMC Visual product families, and the EMC Smarts software product family, grew 21% in the first quarter. Backup and Archive software license revenue, which comprises all EMC software for backup and archiving including the EMC Dantz software family, grew revenues 36% during the quarter, driven by EMC Legato NetWorker, EMC Dantz Retrospect, EMC EmailXtender, EMC DiskXtender and EMC Replication Manager software. Content Management Software license revenue, including the entire EMC Documentum line, grew 23% with the addition of more than 125 new customers during the quarter.
    VMware, an EMC subsidiary, reported record quarterly revenues of $80 million in the first quarter, a year-over-year increase of 104%. VMware booked a record number of new deals, and license sales represented nearly 80% of VMware's first-quarter revenues. VMware's triple-digit revenue growth was led by strong customer demand for its virtual infrastructure software products used widely for server consolidation and containment, business continuity, test/development and the enterprise desktop. During the quarter VMware continued to strengthen its channels and deepen relationships with Dell, Hewlett-Packard, IBM and Intel. In the last year, VMware's innovation, excellence and strategic importance to customers around the world have been recognized through more than 20 industry awards.
    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 (1) the provisions of the American Jobs Creation Act of 2004, (2) the potential impact of any mergers, acquisitions, divestitures or business combinations that may be announced after the date hereof or (3) the potential impact of expensing stock options under the Financial Accounting Standards Board's Statement 123R (FAS 123R). These statements supersede all prior statements regarding Business Outlook set forth in prior EMC news releases.

    Second quarter of 2005

--	Consolidated revenues for the second quarter of 2005 are expected to be approximately $2.330 billion to $2.355 billion.
--	Diluted earnings per share are expected to be $0.12.

    Full-year 2005

    -- For the year, EMC's addressable market is estimated to grow at
    around 7%-8%, and EMC's consolidated revenues are expected to
    grow at approximately twice the upper-end of that market
    range. Additionally, revenue from the SMARTS acquisition is
    expected to add almost another 1% to EMC's revenue growth rate
    in 2005.

    -- Gross margins are expected to be just under 53% for the
    full-year of 2005.

    -- Operating expenses (which include selling, general and
    administrative expenses and research and development expenses)
    as a percentage of revenue should be in the 35.5% to 37.0%
    range for 2005.

    -- Operating income as a percentage of revenue should reach the
    high teens in the fourth quarter of 2005.

    -- The income tax rate for the remainder of the year is expected
    to be around 28%, excluding one-time items.

    -- Diluted earnings per share for 2005 should be in the $0.50 to
    $0.51 range.

    About EMC

    EMC Corporation (NYSE: EMC) is the world leader in products, services and solutions for information storage and management that help organizations extract the maximum value from their information, at the lowest total cost, across every point in the information lifecycle. Information about EMC's products and services can be found at www.EMC.com.
    EMC, Celerra, CLARiiON, Dantz, DiskXtender, Documentum, EmailXtender, EMC ControlCenter, Legato, Powerpath, Retrospect, SMARTS and VMware are registered trademarks, and Centera, ESX Server and VMware ACE are trademarks of EMC Corporation. All other trademarks are the property of their respective owners.
    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) risks associated with acquisitions and investments, including the challenges and costs of integration, restructuring and achieving anticipated synergies; (iv) competitive factors, including but not limited to pricing pressures and new product introductions; (v) the relative and varying rates of product price and component cost declines and the volume and mixture of product and services revenues; (vi) component and product quality and availability; (vii) the transition to new products, the uncertainty of customer acceptance of new product offerings and rapid technological and market change; (viii) insufficient, excess or obsolete inventory; (ix) war or acts of terrorism; (x) the ability to attract and retain highly qualified employees; (xi) fluctuating currency exchange rates; and (xii) 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.

EMC CORPORATION Consolidated Income Statements (in thousands, except per share amounts) Unaudited

Three Months Ended -----------------------

March 31, March 31, 2005 2004 ----------- ----------- Revenues: Product sales $1,620,503 $1,378,596 Services 622,628 493,033 ----------- ----------- 2,243,131 1,871,629

Cost and expenses: Cost of product sales 798,539 705,946 Cost of services 270,371 228,014 Research and development 234,297 204,596 Selling, general and administrative 615,746 534,625 Restructuring and other special charges 968 28,228 ----------- -----------

Operating income 323,210 170,220

Investment income 42,995 41,030 Interest expense (2,033) (1,973) Other expense (2,304) (5,777) ----------- -----------

Income before taxes 361,868 203,500 Income tax provision 92,034 63,695 ----------- -----------

Net income $269,834 $139,805 =========== ===========

Net income per weighted average share, basic $0.11 $0.06 =========== ===========

Net income per weighted average share, diluted $0.11 $0.06 =========== ===========

Weighted average shares, basic 2,395,509 2,415,550

Weighted average shares, diluted 2,443,455 2,467,209

As a % of total revenue: Gross margin 52.3% 50.1% Selling, general and administrative 27.5% 28.6% Research and development 10.4% 10.9% Operating income 14.4% 9.1% Net income 12.0% 7.5%

EMC CORPORATION Consolidated Balance Sheets (in thousands, except per share amounts) Unaudited

March 31, December 31, 2005 2004 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $1,684,959 $1,476,803 Short-term investments 1,377,973 1,236,726 Accounts and notes receivable, less allowance for doubtful accounts of $38,587 and $39,901 1,085,260 1,162,387 Inventories 594,260 514,065 Deferred income taxes 307,280 289,810 Other current assets 161,207 151,135 ------------ ------------ Total current assets 5,210,939 4,830,926 Long-term investments 4,433,790 4,727,237 Property, plant and equipment, net 1,583,976 1,571,810 Intangible assets, net 516,749 499,478 Other assets, net 533,328 509,041 Goodwill, net 3,526,083 3,284,414 ------------ ------------ Total assets $15,804,865 $15,422,906 ============ ============

LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current portion of long- term obligations $351 $183 Accounts payable 525,344 522,587 Accrued expenses 1,123,440 1,090,666 Income taxes payable 409,521 404,772 Deferred revenue 1,001,309 930,492 ------------ ------------ Total current liabilities 3,059,965 2,948,700 Deferred revenue 584,917 570,995 Deferred income taxes 198,696 141,600 Long-term convertible debt 128,081 128,456 Other liabilities 109,520 109,868

Commitments and contingencies Stockholders' equity: Series preferred stock, par value $.01; authorized 25,000 shares, none outstanding - - Common stock, par value $.01; authorized 6,000,000 shares; issued and outstanding 2,402,770 and 2,404,969 shares 24,028 24,050 Additional paid-in capital 6,193,424 6,221,099 Deferred compensation (131,100) (124,286) Retained earnings 5,707,180 5,437,346 Accumulated other comprehensive loss, net (69,846) (34,922) ------------ ------------ Total stockholders' equity 11,723,686 11,523,287 ------------ ------------ Total liabilities and stockholders' equity $15,804,865 $15,422,906 ============ ============

EMC CORPORATION Consolidated Statements of Cash Flows (in thousands) Unaudited

For the Three Months Ended ----------------------- March 31, March 31, 2005 2004 -----------------------

Cash flows from operating activities: Cash received from customers $2,411,574 $2,005,241 Cash paid to suppliers and employees (1,839,614) (1,580,610) Dividends and interest received 53,343 38,849 Interest paid (3,179) (1,188) Income taxes paid (21,694) (39,727) ----------- ----------- Net cash provided by operating activities 600,430 422,565 ----------- -----------

Cash flows from investing activities: Additions to property, plant and equipment (98,290) (86,182) Capitalized software development costs (42,127) (41,893) Purchases of short and long-term available for sale securities (1,946,021) (2,270,847) Sales and maturities of short and long-term available for sale securities 2,050,682 1,900,525 Business acquisitions, net of cash acquired (252,904) (529,664) Other (1,000) (4,337) ----------- ----------- Net cash used in investing activities (289,660) (1,032,398) ----------- -----------

Cash flows from financing activities: Issuance of common stock 34,459 44,906 Purchase of treasury stock (127,097) (44,557) Payment of long-term and short-term obligations (44) (2,951) Issuance of long-term and short-term obligations 163 - ----------- ----------- Net cash used in financing activities (92,519) (2,602) ----------- ----------- Effect of exchange rate changes on cash (10,095) (50) ----------- ----------- Net increase (decrease) in cash and cash equivalents 208,156 (612,485) Cash and cash equivalents at beginning of period 1,476,803 1,752,976 ----------- ----------- Cash and cash equivalents at end of period $1,684,959 $1,140,491 =========== ===========

Reconciliation of net income to net cash provided by operating activities: Net income $269,834 $139,805 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 152,595 144,039 Non-cash restructuring and other special charges 3,100 16,129 Amortization of deferred compensation 13,875 13,755 Provision for doubtful accounts 709 1,243 Deferred income taxes, net 43,494 5,223 Tax benefit from stock options exercised 14,111 22,194 Other 10,479 - Changes in assets and liabilities, net of acquisitions: Accounts and notes receivable 100,600 (26,088) Inventories (82,188) (24,419) Other assets (21,973) 7,110 Accounts payable (4,092) 21,380 Accrued expenses 23,868 (52,477) Income taxes payable 12,788 (3,734) Deferred revenue 67,134 158,457 Other liabilities (3,904) (52) ----------- ----------- Net cash provided by operating activities $600,430 $422,565 =========== ===========

Non-cash activity: Issuance of stock options exchanged in business combinations $37,360 $72,026

EMC Corporation Supplemental Financial Data Revenue Analysis (in thousands) Unaudited

Revenue Components

Q1 2004 Q2 2004 Q3 2004 ---------------------------------

Revenues Systems $894,956 $930,230 $948,938

Software: Software License 483,640 525,549 537,980 Software Maintenance 176,102 189,947 207,257 --------------------------------- Total Software License & Maintenance 659,742 715,496 745,237

Professional, Systems Maintenance and Other Services 297,053 308,502 320,401

1,851,751 1,954,228 2,014,576

Other Businesses 19,878 16,956 14,303

--------------------------------- Total Consolidated Revenues $1,871,629 $1,971,184 $2,028,879 =================================

Percentage impact to EMC revenue growth rate due to changes in exchange rates from the prior year 5.9% 3.9% 3.1%

Q4 2004 YTD 2004 Q1 2005 ---------------------- -----------

Revenues Systems $1,096,882 $3,871,006 $1,025,971

Software: Software License 636,946 2,184,115 594,532 Software Maintenance 225,409 798,715 237,894 ---------------------- ----------- Total Software License & Maintenance 862,355 2,982,830 832,426

Professional, Systems Maintenance and Other Services 386,070 1,312,026 374,609

2,345,307 8,165,862 2,233,006

Other Businesses 12,489 63,626 10,125

---------------------- ----------- Total Consolidated Revenues $2,357,796 $8,229,488 $2,243,131 ====================== ===========

Percentage impact to EMC revenue growth rate due to changes in exchange rates from the prior year 2.5% 3.7% 1.7%

EMC Corporation Supplemental Financial Data Revenue Analysis (in thousands) Unaudited

Supplemental Revenue Data

Q1 2004 Q2 2004 Q3 2004 ---------------------------------

Symmetrix Hardware and Software Revenue ( a ) $671,838 $650,181 $646,292

CLARiiON Hardware and Software Revenue ( a ) 284,615 326,086 354,563

Connectivity Revenue ( b ) 143,516 164,326 169,105

Platform Software License Revenue $251,135 $263,168 $275,851 Platform Software Maintenance Revenue 66,525 73,210 83,617 --------------------------------- Total Platform Software License and Maintenance Revenue $317,660 $336,378 $359,468 =================================

EMC Software Group Software License Revenue: Storage and Management Software License Revenue $121,340 $145,917 $133,784 Backup and Archive Software License Revenue 37,962 38,977 36,404 Content Management Software License Revenue 40,051 38,656 42,195 --------------------------------- Total EMC Software Group Software License Revenue $199,353 $223,550 $212,383 =================================

EMC Software Group Software Maintenance Revenue $103,931 $109,455 $116,110 =================================

EMC Software Group Revenue ( c ) $323,588 $352,734 $350,883 =================================

VMware Software License Revenue $33,152 $38,831 $49,746 VMware Maintenance and Services Revenue 6,142 8,367 10,874 --------------------------------- Total VMware Revenue $39,294 $47,198 $60,620 =================================

Q4 2004 YTD 2004 Q1 2005 ---------------------- ----------

Symmetrix Hardware and Software Revenue ( a ) $755,342 $2,723,653 $652,328

CLARiiON Hardware and Software Revenue ( a ) 392,841 1,358,105 418,641

Connectivity Revenue ( b ) 191,917 668,864 176,053

Platform Software License Revenue $318,719 $1,108,873 $284,485 Platform Software Maintenance Revenue 93,260 316,612 100,064 ---------------------- ---------- Total Platform Software License and Maintenance Revenue $411,979 $1,425,485 $384,549 ====================== ==========

EMC Software Group Software License Revenue: Storage and Management Software License Revenue $157,121 $558,162 $146,708 Backup and Archive Software License Revenue 53,011 166,354 51,742 Content Management Software License Revenue 51,515 172,417 49,302 ---------------------- ---------- Total EMC Software Group Software License Revenue $261,647 $896,933 $247,752 ====================== ==========

EMC Software Group Software Maintenance Revenue $122,396 $451,892 $125,371 ====================== ==========

EMC Software Group Revenue ( c ) $410,171 $1,437,376 $401,325 ====================== ==========

VMware Software License Revenue $56,580 $178,309 $62,295 VMware Maintenance and Services Revenue 14,485 39,868 17,795 ---------------------- ---------- Total VMware Revenue $71,065 $218,177 $80,090 ====================== ==========

( a ) Includes hardware, hardware upgrades and platform software.

( b ) Includes Connectrix fibre channel switch/director revenues and Celerra file server revenue, exclusive of disk revenue.

( c ) Includes license, maintenance and services revenues for all categories except for traditional multi-platform software which only includes license and maintenance revenues.

EMC CORPORATION Supplemental Schedule of Earnings Adjusted to Expense Stock Options (in thousands, except per share amounts) Unaudited

Three Months Ended -------------------------- March 31, March 31, 2005 2004 --------------------------

Net income $269,834 $139,805

Stock option expense, net of taxes (84,827) (87,790)

-------------------------- Adjusted net income $185,007 $52,015 ==========================

Net income per weighted average share, basic - as reported $0.11 $0.06 ==========================

Net income per weighted average share, diluted - as reported $0.11 $0.06 ==========================

Adjusted net income per weighted average share, basic $0.08 $0.02 ==========================

Adjusted net income per weighted average share, diluted $0.08 $0.02 ==========================

Included in the above are stock options with exercise prices of $36.66 and greater. For the quarter ended March 31, 2005, these options accounted for $52.6 million of stock option expense or $ 0.02 per weighted average share - basic and $0.02 per weighted average share - diluted earnings per share.

--30--MP/bo*

CONTACT: EMC Corporation Greg Eden, 508-293-7195 eden_greg@emc.com

KEYWORD: MASSACHUSETTS INDUSTRY KEYWORD: HARDWARE SOFTWARE EARNINGS CONFERENCE CALLS SOURCE: EMC Corporation

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