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EMC Sees Corvex Exit Position in 4Q14

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Corvex exits stake in EMC

Corvex Management sold its stake in EMC (EMC). The position accounted for 0.52% of the fund’s total portfolio in the third quarter.

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Overview of EMC

EMC is a leading data storage systems player. According to the International Data Corporation, or IDC, EMC commands a 31% market share in the external storage systems space.

EMC Information Infrastructure, Pivotal, and VMware’s (VMW) virtual infrastructure collectively forms the company’s “federated” business model. The business model is unique because although all three businesses focus on their core functions separately, they all play a vital role in the delivery of IT as a service, or ITaaS.

EMC Information Infrastructure’s business consists of three segments:

  1. Information Storage
  2. Information Intelligence
  3. RSA Information Security

A release from IDC noted that “EMC finished 4Q14 in the top position within the total worldwide enterprise storage systems market, accounting for 22.2% of all spending.” But this share was down from 23.1% in 4Q13. EMC was followed by HP (HPQ), which accounted for 13.8% of spending in 4Q14. Dell and IBM (IBM) finished the quarter in a “statistical tie.”

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EMC expands its cloud foothold with strategic acquisitions

EMC is expanding in the cloud space through a number of strategic acquisitions. In October 2014, EMC announced that it would acquire Cisco’s (CSCO) stake in VCE. VCE is a joint venture between EMC and Cisco. EMC has an 83% stake in VCE. Following the acquisition, VCE will be part of EMC’s Information Infrastructure business.

In October, it also announced that it would acquire Maginatics—a provider of data protection across clouds. It also completed the acquisition of Cloudscaling—a developer of OCS (open cloud system) technology.

EMC has no plans to spin off VMware 

In October 2014, hedge fund Elliot Management—one of EMC’s largest investors—urged the company to complete a tax-free spin-off of its 80% stake in VMware. According to the fund, the federation structure isn’t suitable for EMC. The fund asked EMC to explore options before CEO Joseph Tucci’s retirement in February 2015.

On January 12, EMC announced the appointment of two new directors to its board. The directors were approved by Elliot. On March 10, Tucci confirmed that EMC doesn’t intend to spin off VMware. The board is still in the process of deciding on a successor for Tucci.

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EMC’s solid 4Q14 and full-year 2014 results

In 4Q14, EMC’s revenue was $7 billion. That’s up 5% year-over-year, or YoY. VMware and Pivotal drove this growth. VMware’s revenue grew by 16% in 4Q14 and full-year 2014. Pivotal’s 4Q14 revenue was up by 18%. Its full-year revenue was up by 27%. GAAP (generally accepted accounting principles) diluted EPS (earnings per share) was $0.56—up 17% YoY. For full-year 2014, revenue increased 5% to $24.4 billion. GAAP EPS declined 1% to $1.32.

Returns to shareholders

In 2014, EMC returned $3.9 billion to its shareholders. It repurchased $3 billion in stock and paid $900 million in dividends. In 4Q14, it repurchased $1.6 billion in shares and paid $240 million in dividends. On March 2, it declared a quarterly dividend of $0.115 per share.

You can gain diversified exposure to EMC by investing in the Sector SPDR Trust SBI Interest (XLK). EMC accounts for 1.33% of XLK. It also accounts for 1.64% of the iShares U.S. Technology ETF (IYW).

The next part of this series will review Corvex’s exit from Humana.

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