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EMC: Thin provisioning won't affect storage spending

Beth Pariseau, Senior News Writer

EMC plans to have virtual provisioning shipping in all its disk arrays by summer, but that the effect of the technology on IT storage spending has been "way overplayed." That's according to EMC CEO Joe Tucci during an earnings call last week.

Virtual provisioning is EMC's term for thin provisioning, which helps customers to provision storage more efficiently. Because thin provisioning improves storage utilisation rates, financial analysts on the call were concerned that it could result in EMC selling less storage.

Tucci tried to convince them that won't be the case. "Let's say your utilisation today is 50%," he said. "Thin provisioning might bring it to 85%, but after that, more data growth means you need to add more storage… it doesn't compound forever."

Tucci said that the thin provisioning feature has become "mandatory in the storage landscape," but will not impact storage demand or revenues. "As they say in life, 'There's no such thing as a free lunch'," he said. "[Virtual provisioning] does take processing cycles and software, both of which we charge for."

Although EMC is promising thin provisioning and data deduplication across its product lines, the company seems more focused on cloud and consumer computing. The company's earnings report revealed the acquisition of cloud computing startup Pi in February caused its quarterly profits to dip compared to the same quarter a year ago, thanks to $79 million (£39.5m) in R&D costs incurred

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from tucking the stealth startup into its portfolio. Despite revenues of $3.5 billion (£1.75bn) last quarter - up 17% from a year ago - EMC's net income of $268.8 million (£134.4m) dropped 14% from $312.6 million (£156.3m) a year ago.

EMC officials largely glossed over the profit issue on the earnings call, focusing instead on the company's cash flow of $7.9 billion (£3.95bn) and the overall health of the business. EMC's storage sales grew 12% year over year to $2.7 billion (£1.35bn). Midrange Clariion system revenue increased 19%, and Dell still accounted for one-third of that. Revenue for EMC's newest multiprotocol NAS boxes, the NS-20 and NS-40, were up 50%.

With its move into cloud computing and the proposed acquisition of Iomega – which has yet to close - Tucci said EMC is in position to "play at both ends" of a burgeoning consumer storage market. He said that middle-class homes are expected to have an average of 1 TB of storage in the coming years and enterprise service providers will store much of that data online. "We will maintain our planned spending on R&D and focus on cutting our indirect expenses," he said. "I love our strategic positioning today, and I love it even more for tomorrow."

Financial analysts on the earnings call questioned Tucci about these plans, repeatedly asking him about EMC's financial outlook for the year. That outlook remains unchanged, despite a softening economic environment in the US and "lumpiness" in software sales, especially in content management and archiving (CMA). The CMA business unit was up 8% in total revenues, but suffered from lengthening sales cycles in certain markets, such as financial services, and what David Goulden, EMC's chief financial officer, termed "execution issues."

One analyst pointed out that, excluding VMware, EMC's overall revenue for new software licenses dropped 5% year on year, although revenue from license renewals and support grew 20%. Tucci's reply: "Users are looking for a bundled solution and a package price when it comes to new software purchases. We focus on making sure we do a good job on renewals."