EMC Corp. can expect a harder time trying to sell investors on its federation model after posting a mixed earnings report for the first quarter that highlights the growing challenges of the competitive balancing act underpinning the strategy. Although that’s not immediately apparent from the top line.

The storage giant sold $5.6 billion worth of equipment, software and services in the past three months, which represents a year-on-year increase of just two percent, the same growth rate as in the first quarter of 2014. EMC boss Joe Tucci easily shrugged off the lack of momentum during the earnings call, citing unfavorable exchange rates and reduced demand from major emerging markets.

But the company struggled to paint an optimistic picture of its net earnings, which tanked 32 percent from 12 months ago to $0.13 per share. Much of that weakening can be attributed to EMC’s core storage business, the heart of its federation, which saw revenue remain effectively flat year-over-year amid faltering demand for the disk-based arrays that generate the bulk of its income.

Organizations are shifting more and more of their storage spending to fast flash-powered alternatives as the price of the underlying solid-state memory continues to decline, which is hurting EMC’s most profitable systems. And Wikibon expects the trend to persist until the technology will eventually surpass most categories of enterprise-grade disk storage in cost efficiency.

EMC is trying to adjust for that changing demand through aggressive investments in flash and converged infrastructure, two areas that showed strong growth during the first quarter, but that’s still far from enough to make up for the declines across the rest of its storage business. Indeed, the only major saving grace in EMC’s earnings report came from a entirely different part of the federation, VMware Inc., which saw revenue surge 12 percent despite mounting competition in its own market.

However, that growth is a double-edged sword. The financial disparity between EMC and its virtualization subsidiary will likely serve to reinforce the position of Elliot Management Corp., which bought a billion-dollar stake in the company last year with the goal of pushing Tucci into spinning off VMware. The earnings report could rally more shareholders behind the activist hedge fund, which is potentially bad news for the CEO’s plans.

It also doesn’t help that EMC had to shave about $400 million off its full-year revenue forecast, but Tucci has been adamant in resisting Elliot’s efforts so far. And Wikibon predicts that he will maintain that position to pursue his long-term vision for the federation.