Worries about hardware demand continue to move stocks in the tech sector. To a large extent, the Street seems to have moderated its expectations, but EMC's (NYSE:EMC) supposed sluggish first quarter and conservative guidance seem to have some analysts concerned. Given the company's strong share across the board, EMC still looks like a great play on the hot Big Data theme.

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First Quarter Just OK
Like IBM (NYSE:IBM) before it, EMC reported a year-on-year revenue increase (up roughly 11%) and a sequential revenue decline (9%). In the case of EMC, this led to a small miss versus estimates. Weakness seems to have come from the high end of the range, where revenue dropped 10% after a long run of solid growth. Mid-range, VMware (NYSE:VMW) and BRS all grew better than 20%.

EMC saw a definite profit boost from a mix that favored higher-margin products and software. Gross margin jumped more than two points, while operating income jumped 26% on a relatively modest increase in marketing spending.

Opening a New Field of Battle
Earlier in the first quarter, EMC took the wrapper off Project Lightning - introducing VFCache as EMC's entry into the server flash memory market. While the relatively high cost of this high-performance memory has kept adoption low overall, Fusion-IO (NYSE:FIO) has posted some impressive growth by targeting applications where the speed advantages are crucial.

Apparently, Fusion-IO sees EMC's entry as a threat. I say that because it appears that Fusion-IO's CEO couldn't wait to get out and talk down the EMC system, and I don't see why a CEO would take time out of his day to talk down a product that was no real threat. To be fair, EMC's product is more expensive, but this is just the point of entry for EMC, which usually wins the battles it starts. That said, Fusion-IO may have a vested interest in reminding others of its qualities and keeping its name in the mix as an acquisition target for IBM, Hewlett Packard (NYSE:HPQ), Dell (Nasdaq:DELL), NetApp (Nasdaq:NTAP) or perhaps EMC itself.

SEE: The Basics Of Mergers And Acquisitions

Just a Pause on the High-End ... Hopefully
With IBM and Oracle (Nasdaq:ORCL) seeing a relatively more challenging hardware market to start 2012, I'm not sure investors should worry too much about the slowdown in the high-end EMC business. Obviously, big growth from NetApp (they report later) would be an issue, and EMC management's conservative guidance for the year does have some analysts worried. Still, this is a stock where the Street seems to assign only modest value to the core business.

The Bottom Line
At this point, I'm looking for EMC to produce nearly 9% free cash flow growth over the next decade - aggressive, perhaps, but maybe not so much so given the expected growth in Big Data over that same horizon. Moreover, this is a leader that continues to gain share in many cases; IBM's growth appears tied to other hardware sales, while neither Dell nor HP seem to have especially worrisome momentum.

For investors who buy into the notion of a high single-digit cash flow growth rate, fair value is in the $40 range. While buying tech stocks going into the summer, to say nothing of buying into a slight top line miss, is often a challenging prospect, EMC continues to look like a good growth-value mix in tech.

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At the time of writing, Stephen Simpson did not own shares in any of the companies mentioned in this article.

Tickers in this Article: EMC, IBM, ORCL, FIO, NTAP, HPQ, DELL, VMW

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