EMC, Once a Rising Star, Dims as Industry Slows

James Rogers

NEW YORK (TheStreet) -- Data-storage company EMC (:EMC), usually one of the technology sector's star performers, has been losing some of its luster.

Widely deployed in enterprise data centers and perfectly positioned for the Big Data boom, EMC has earned plenty of plaudits in recent years. The storage maker has also benefited greatly from its ownership of virtualization trailblazer VMware(:VMW).

The company's star among Wall Street analysts, however, has fallen.

Morgan Stanley on Thursday downgraded EMC to "equal weight," or "hold," citing slowing storage growth. Weak enterprise demand and pressure from flash storage and cloud technology prompted the investment bank to cut its fourth-quarter earnings estimates from 52 cents to 51 cents a share. Morgan Stanley also lowered its fiscal 2013 earnings forecast from $1.95 to $1.85.

Signs of a slowdown emerged during EMC's third-quarter results in October. After a run of strong quarterly numbers, the Hopkinton, Mass.-based firm missed Wall Street's revenue and profit estimates, although many fans stayed loyal to the company.

Now, though, a number of analysts are voicing concern about the storage climate.

On Tuesday, William Blair downgraded EMC from "outperform" to "market perform" (also a "hold"), citing headwinds to storage industry growth and reduced confidence in the company's ability to meet 2013 consensus estimates.

"Storage spending has no doubt been adversely affected by global macroeconomic weakness and lower business confidence," William Blair analyst Jason Adler wrote. "Our research suggests that structural issues are equally at play with customers now equipped with more efficient ways of deploying storage relative to traditional approaches."

Flash technologies, the migration of data to the cloud and the convergence of servers and storage is driving greater efficiency in customer data centers, he added, pressuring incumbents such as EMC.

Analysts surveyed by Thomson Reuters expect EMC to report fiscal 2013 earnings of $1.91 a share on revenue of $23.63 billion.

The company reports its fourth-quarter 2012 results on Jan. 29. Consensus estimates are looking for earnings of 52 cents a share on revenue of $5.98 billion.

Cantor Fitzgerald analyst Paul Mansky thinks the pessimism around EMC could spell good news for investors. "We expect sentiment around EMC to likely be challenged in the coming weeks given potential risks to 4Q results and initial 2013 outlook," he wrote in a note released on Monday, trimming his estimates and price target. "With our expectations of re-accelerating fundamentals by mid-year, we view this transient period as an attractive time to continue to build positions."

Mansky lowered his EMC price target from $30 to $28.50, but maintained his "buy" rating on the stock.

Shares of EMC, which are up almost 8% in the past 12 months, dipped gained 0.2% to $23.89 in early trading on Friday.

-- Written by James Rogers in New York.

Follow @jamesjrogers

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