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October 31, 1999

DG Acquisition to Cost EMC $100m-Plus in Q4

By CBR Staff Writer

EMC Corp said last week its acquisition of fellow storage products manufacturer, Data General Corp would hurt fourth-quarter earnings to December 31 but add to profits for 2000. Number-one storage systems and software vendor, EMC, closed its $1.1bn acquisition of Westborough, Massachusetts-based Data General on October 12. The firm said the purchase would add in excess of $100m in charges during the current quarter from transaction costs, job cuts and other factors. This will translate into a two-penny cut in earnings per share. A consensus of analysts polled by First Call had projected that EMC would turn a fourth-quarter net profit of 32 cents a share.

EMC convened a briefing with analysts last Thursday after they had complained that the firm did not give guidance on the likely impact of the Data General acquisition in the current quarter when it released third-quarter earnings on October 20.

EMC reported earnings for its third quarter to September 30 of $309.5m, or 29 cents per diluted share, on revenue of $1.33bn. President and chief executive officer, Mike Ruettgers said on Thursday that EMC and Data General combined would have earned $296m, or 27 cents a share, on $1.7bn of revenue for the period. For its full year to September 30 Data General had sales of about $1.4bn, flat to its previous year’s revenue, Ruettgers said.

EMC expects the Data General deal to realize $100m in sales of CLARiiON Fibre Channel storage products and $200m in sales of AViiON Servers, Ruettgers said. The firm plans to shake up Data General’s AViiON server unit in 2000 cutting 25%-30% off its $1bn annual costs. Ruettgers said EMC had no plans to sell the unit, which he said would show a profit for fiscal 2000. The company is precluded from disposing of any ex-DG unit for at least two years due to the pooling of interest terms under which the acquisition was accounted for.

Ruettgers tipped CLARiiON to add $600m in revenue during 2000 and said the product line has a revenue potential of $1bn. He said the company as a whole expected to achieve a revenue growth rate for 2000 in the mid-20s. The acquisition of Data General increased EMC’s potential market in the high-end data storage industry to $50bn from around $35bn, Ruettgers said.

Last Tuesday, Ruettgers told journalists attending a showcase of EMC’s wares and future prospects in San Francisco that the firm expected to grow revenue organically to $10bn by 2001, from $3.9bn for fiscal 1998.

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