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EMC looking to cut most employees' pay by 5%

Data storage firm's plan comes amid 9% slump in sales

By Hiawatha Bray
Globe Staff / April 24, 2009
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EMC Corp., stung by lower-than-expected sales of its data storage hardware and software, is calling for a 5 percent pay cut for most of its 41,000 workers worldwide, including 23,000 in the United States and 8,800 in Massachusetts.

Yesterday, the company said first-quarter sales declined 9 percent from the previous year, missing industry analyst expectations and indicating how demand for heavy-duty storage gear has fallen off amidst the global recession. Quarterly net income declined by 23 percent, to $205 million, or 10 cents a share.

"IT [information technology] budgets are still tight and customers are only buying what they must have and need for today," said EMC chief executive Joe Tucci. He said worldwide spending on computer gear will decline by "very high single to very low double digits this year," but said the downturn appears to be leveling off.

"I do believe we are at or very near the bottom from an IT spending point of view," Tucci said. "I continue to believe that the second half of the year will show an improvement."

Aaron Rakers, a financial analyst with Stifel Nicolaus & Co. in St. Louis, said he wasn't surprised by EMC's numbers. "I think it became fairly widely anticipated that the company was going to have some weak top-line results," he said.

Rakers said demand for storage continues to grow, but at a much slower pace than previously. In recent years, big enterprises had formerly increased their purchases of storage products by 50 to 60 percent annually; Rakers said the growth rate is now below 40 percent.

EMC's two largest product lines have been hit hard by the slump. Sales of high-end Symmetrix storage systems dropped by 25 percent, while sales of the midrange Clariion systems fell 18 percent.

EMC also delivered bad news about VMware Inc., the virtualization software company in which EMC holds a majority stake. Once among the fastest-growing software companies in the world, VMware on Tuesday disclosed revenue growth that was slightly below expectations, and warned that its revenues might decline during the second quarter.

Yesterday, EMC chief financial officer David Goulden said VMware had contributed 5 cents a share to EMC's earnings during the first quarter, but that he expected this to fall by about 2 cents during the second quarter.

In January, EMC said it would lay off 2,400 workers as part of a bid to cut expenses by $350 million during 2009. Goulden said yesterday about half of the layoffs have been carried out. EMC is moving to shed an additional $100 million in costs, this time through pay cuts rather than further layoffs.

Tucci sent a letter to every EMC salaried employee, asking them to agree to the plan. EMC spokesman Patrick Cooley said the company has operations in some countries where labor laws forbid management from imposing pay cuts without the consent of workers, but Cooley said the company can impose the cuts on its US workforce. Workers paid by the hour are not subject to the cuts, but they make up a small percentage of EMC employees.

EMC has already cut the salary of Tucci and other top executives by 10 percent. For Tucci, that's a reduction from $1 million last year to $900,000 this year. Tucci's bonus has been also cut by 30 percent, from $1.44 million last year to just over $1 million this year, while four other executives have take 10 percent bonus cuts.

Hiawatha Bray can be reached at bray@globe.com.

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