Times are not great for legacy technology companies that used to dominate the IT world -- but their CEOs are still enjoying magnificent pay packets.
And with its April 20 earnings report,
Last year, EMC announced it would merge with privately held computer maker
Given its latest financial performance, it cannot get off the public stage fast enough.
That’s because it reported first-quarter sales and profit that “fell short of analysts’ estimates in a slowing market for storage devices,” according to Bloomberg.
EMC reported disappointing earnings per share and revenue for the first quarter. Its adjusted earnings per share of 31 cents fell two cents short of analysts’ expectations, and revenue of $5.48 billion was roughly the same as the previous year — and about $150 million below expectations, according to Bloomberg.
EMC is suffering from many of the same problems as IBM, which has been shrinking for each of the last 16 quarters. Hewlett Packard Enterprise reported a drop in first quarter 2016 revenue -- down 3% to $12.7 billion and net income -- down 51% to $300 million. And Oracle revenues fell 3% to $9 billion as its net income tumbled 14% to $2.1 billion in the March 2016-ending quarter.
Despite these declines, investors are bullish this year on IBM, Hewlett Packard Enterprise, EMC and Oracle -- whose shares were up 11%, 15%, 3.5%, and 11.4% respectively as of April 22.
What ails EMC and many of the others is that sales of their old products are declining faster than new product revenues can take up the slack. For example, demand is slower for EMC’s older and more expensive storage devices. Newer devices using flash technology are not growing fast enough to make up the lost revenues.
Moreover, EMC is being hurt by the growing trend by companies to rent instead of buy storage equipment — and any computer hardware more generally.
That is due to the growing popularity of the opaquely-named cloud, a service that lets companies pay a monthly fee to rent computer systems from Amazon, Microsoft, Google and others.
Abhey Lamba, an analyst at Mizuho Securities USA, told Bloomberg, "The core storage business is moving to the cloud at an accelerated pace, and that’s a net negative for the company. Flash is doing well for EMC, but a lot of that is cannibalizing their own legacy systems."
The combination of Dell, the second largest server vendor, and EMC, the leader in storage devices, is on still on track. But when it comes to the ever-growing cloud, the deal is a combination between two losers.
The cloud computing “wars” are “entering a new phase,” and it will hurt traditional IT vendors such as SAP, Oracle and IBM, according to a report published in April by JP Morgan analysts Mark Murphy, Doug Anmuth, Sterling Auty, Rod Hall, and Philip Cusick.
Their survey of more than 207 chief information officers at companies with an annual budget of at least $600 million found that Microsoft will remain the dominant IT vendor ahead of Amazon, IBM and others. JP Morgan believes that Microsoft will be the only vendor not to lose market share as the so-called public cloud grows at a 20% annual rate through 2021.
The good news for EMC and Dell is that they were not the biggest losers.
IBM topped that list with 26.1% of respondents naming it the biggest loser. Second was Hewlett-Packard Enterprise, with 15%. Oracle was third with 14.5%, Dell was fourth with 12.1%, and EMC was fifth with 11.6%, according to the JP Morgan report.
As EMC Chairman and Chief Executive Officer Joseph M. Tucci said in an earnings conference call, “We continue to make progress on our combination with Dell. Integration planning has accelerated to ensure we begin at full speed upon closing, the leadership team has been established, and we’ve received the vast majority of anti-trust approvals required.”
Tucci said that China is the only country that has not approved the merger; the deal terms have not changed, and it should be completed within the originally scheduled time frame, around October 2016.
As for Tucci, if the deal goes through, he will be able to retire with a much bigger paycheck. As I wrote last October, Tucci has announced his retirement several times over the last few years, but never followed through. On October 12, 2015, I found out why: If he had retired, EMC would have paid him roughly $124,000. If the Dell deal goes through, Equilar calculated, Tucci would rake in $27.2 million.
Tucci has a clear incentive to stay on the job to make the Dell deal close.
But Tucci did not mention his payday in the conference call during which he did say, “This is all about making sure it’s a good deal for our customers, our shareholders and our people. I’m just not making myself a part of this process or a condition or any factor in this process.”
Tucci has about 27 million reasons to be happy about his departure from EMC.
But shareholders at IBM, Hewlett Packard Enterprise, and Oracle will keep paying their CEOs huge rewards for unimpressive performance. IBM's Virginia Rometty hauled in $19.8 million in 2015 -- a 2.6% raise; HPE's CEO Meg Whitman only made $17.1 million -- a 12.8% pay cut; and Oracle's Larry Ellison -- chairman and chief technology officer -- hauled in a whopping $63.6 million -- though it was 5.5% less than Ellison made the year before.
It clearly pays to be riding on the back of the four horses of the tech apocalypse. But if you're a customer or shareholder of these four companies, there's no reason to cheer.
