EMC Announced 1st Quarter earnings this week. Complete detail can be found at http://www.emc.com/collateral/corporation/earnings/2013q1.pdf
This post will discuss out thoughts on IIG’s Financial Performance in comparison to the rest of EMC.
Documentum IIG Performance – Not bad but not growth
IIG’s individual performance is presented below
Product Revenues are up from 1st quarter last year but down when compared with 2nd, 3rd or 4th quarter. It is not that surprising as Documentum tends to cram sales in by year-end when clients are looking to spend 2012 money. The additional spend in 4th quarter 2012 typically adversly affects 1st quarter volume.
Service Revenue has pretty much remained steady over the 4 quarters. Some telling statistics when comparing to overall EMC
- IIG Product Revenue is 1.4% of EMC’s Overall Product Revenue
- IIG Service Revenue is 4.9% of EMC’s Overall Service Revenue
- IIG Total Revenue is 2.8% of overall EMC Revenue
- IIG Total Revenue is 5 times smaller than the VMWare
IIG can sometimes be saddled with the moniker of “worst performing division at EMC” but, keep in mind, EMC is an incredibly well performing company. Of the “four horsemen of the Internet (Sun, Intel, Cisco and EMC)” – EMC has done incredibly well, particularly compared to Sun.
Profit over Revenue
As we have said over the past years, EMC isn’t particularly concerned about a division that is less than 3% of overall revenue as long as it is profitable. Unfortunately we don’t get financial information on net income for the different divisions but I would predict that net income has risen for IIG over the last year. With revenues remaining stable, net income would increase by reducing expenditures. Expenditures could include:
- R&D Expenditures – Either less R&D or more cost efficient R&D (Outsource to cheaper developers)
- Support Expenditures– Either less support costs or outsource
- Sales Expenditures – reduced commisions
The Services/Solution Play – the IBM pivot
One significant news event that went mostly unnoticed at the end of 2012 was IIG’s purchase of Trinity. We see it as a significant change in Documentum’s focus on product versus service. With ECM moving to more of a commodity based on pressure from more-cost efficient options like Alfresco or SharePoint as well as free collaboration alternatives like DropBox and the host of others, software firms with high prices are struggling and do not get the valuation they used to 10 years ago. Many are pivoting to quickly add services to focus on consulting similar to IBM’s move in the 90s.
We would predict that IIG/Documentum will continue this trend as we mentioned in our preview of EMC World being all about services.
Overall IIG/Documentum results are not bad but it is a very small component of EMC’s overall revenue. IIG/Documentum needs to remain profitable as revenue growth will be difficult. We would not predict significant investments but would expect more of a services/solution practice development similar to IBM’s approach.
With Joe Tucci still charge of EMC, we would predict that the likelihood of EMC to selling off Documentum/IIG division would be unlikely. Joe Tucci was the at the helm of EMC when Documentum was purchased and would not want that decision viewed negatively with a sale given the small impact on the overall company.
Let us know your thoughts below or predictions below.