With the upcoming purchase of EMC by Dell taking the lead of EMC related headlines, most of us missed the EMC earnings announcement that included the ECD division and Documentum. As we presented in 2014 (EMC Announces 2014 Earnings, Layoffs and thoughts of a spin-off) and 2013 and 2012, here are our thoughts on the earnings for 2015.
Documentum 2015 Earnings – Continuing the trend from 2014
Documentum earnings can be found under the EMC Investor Relationship. Some relevant points to consider.
- ECD Revenue was $599 million in 2015, down from $640 million in 2014
- ECD Product Revenue was $156 million in 2015, down from $164 million in 2014 and 180 million in 2013.
- ECD Services Revenue was $443 million in 2015, down from $476 million in 2014.
- ECD Gross Profit on the $599 million was $407 million in 2015, down from $417 million in 2014.
In the past we have been concerned that so much of the division revenue was from services and have been worried that ECD has focused on consulting revenues. Given the gross profit amounts (which include deductions for consulting salaries), we would think that the majority of services revenues are for maintenance (or extended maintenance).
Documentum/ECD – Cash Cow – Now What?
One of our more popular posts over the years has been Would EMC Dump Documentum? Before the Dell announcement, we didn’t feel EMC would execute the split as:
- Tucci bought Documentum – Given that Joe Tucci was at the helm of EMC when Documentum was bought, is still at the helm and vigorously stated in 2012 that Documentum would not be sold off, we saw it as highly unlikely that Joe will admit defeat by making a news event about EMC for something that is still profitable but only accounts for 2.62% of revenue. Joe’s quote in 2012 was that “I think you will see …(with Documentum/IIG/ECD) … a return to growth, probably not next year, but it will remain a part of the company.” Given the Dell purchase, Tucci’s retirement and the huge amount of debt Dell is using the make the purchase, we are predicting a sale shortly after the deal closes or fails.
- Who would buy Documentum? – There isn’t an obvious suitor out there that would buy Documentum. Software is not the hot commodity it used to be (look at Rick Devenuti’s Alma Mater, Microsoft – how have they done over the last 10 years? Looks similar to Documentum). We proposed SAP back in 2010 but it is hard to see anything materialize on that side given SAP’s OpenText relationship.
As we stated last year, Rohit Ghai, the new ECD head last year comes from from Computer Associates – a leader in continuing software firms in a non-growth stage. Rumor mill also references multiple hires that might be coming in to “pretty up ECD” to help with a sale/spin-off.
Documentum continues to be declining in regards to sales. As a “Cash Cow” business, we would predict minimal investment and innovation in regards to the core platform. As we mentioned at EMC World in 2015, while Documentum continues to invest in technology like Project Horizon looking for growth, we are fairly confident that the existing install base would not benefit from these investments with their current product purchases. For these new products, will clients look to Documentum/ECD given the state of limbo with the Dell purchase?
We still remain confident that, given the amount of debt used to fund the Dell purchase of EMC, Dell will sell off non-strategic assets to reduce the debt and Documentum will be one of those assets. If the purchase falls through, with Joe Tucci gone and with the sale of Syncplicity last year, we would think EMC would sell off Documentum as well.
Let us know your thoughts below: