EMC Defends Strategic Purchase of RSA

 
 
By Chris Preimesberger  |  Posted 2006-07-05 Email Print this article Print
 
 
 
 
 
 
 

News Analysis: Analysts are split on the value of EMC's acquisition of RSA, and its CEO reminds naysayers that the storage giant is looking at the bigger picture.

While analysts have been all over the dartboard judging the value of data storage giant EMC's $2.1 billion cash purchase of RSA Security, investors at the New York Stock Exchange reacted very sharply, as EMC's stock price tumbled 7 percent the day after the merger was announced.

"They paid an awful lot of dollars," Steve Berg, an analyst with Punk, Ziegel and Co., in New York, told Reuters. "Will that ultimately prove to be necessary? We'll see."

EMCs stock fell 80 cents to $10.45 in heavy NYSE trading just before the July 4 holiday. The Hopkinton, Mass., company reported 2005 sales of $9.7 billion.

RSA sells keychain-size SecurID devices that businesses use to control access to computer networks. It also has encryption technology that EMC will use to protect data stored on its hardware.

The shares of RSA, of Bedford, Mass., rose $4.35, or 19 percent, to $27.22. It reported $310 million in sales in 2005.

EMC's buyout of RSA could produce one of the most comprehensive data management/security product lines on the market. Click here to read more.

In a June 29 conference call announcing the deal, analysts lined up to fire questions at EMC CEO Joe Tucci and Chief Financial Officer Bill Teuber, arguing that the expensive acquisition doesn't improve EMC's profits nearly enough.

"I'm not sure how investors can conclude this is a good deal for EMC," said Keith Bachman, an analyst at Banc of America Securities in Charlotte, N.C. "The economic realities don't seem to match in any way the strategy you've outlined."

Customers Want Security Woven In

But Tucci told the naysayers that EMC is keeping its eye on the big picture-that "data storage is not complete without top-level security to protect it, and that RSA has one of the best reputations in the business over a number of years."

"Customers aren't asking us to do this," Tucci said. "They're demanding it. And they don't want security bolted on. They want it woven in."

Bob Sadowski, EMC director of marketing for security products, told eWEEK that the deal "is all about identity authentication. We're seeing the focus in security shift from locking down systems to protecting the data itself and authenticating people who access the data. RSA has all that credibility built up and great encryption technology no one else has."

Several analysts to whom eWEEK spoke had varying views on the deal.

"First, I'm really torqued at my broker on this," said Joe Clabby of Clabby Analytics in Boston. "I asked him what he thought about buying RSA back when it was $8 per share, and he said, 'Pass.' He's no longer my broker. ...

"Second, I find this deal curious. On one hand, we've got a security company with market-leading storage software [Symantec now with Veritas], and now we've got a storage company with decent security software [EMC with RSA]. Secure storage is, of course, a must, but shouldn't it be part of a broader picture? For example, an enterprise wants secure systems and storage. EMC doesn't sell systems, so that means they'll sell secure storage and hope a customer wants to run RSA on its systems, too, in order to create a unified environment."

Clabby said he also wonders about some other things:

  • Is this another subsidiary business like VMware, where the acquiree continues to run its own business while being loosely coupled with EMC?
  • Will EMC turn its attention to secure storage now? (The VMware deal really hasn't delivered much virtualized storage to EMC.) Click here to read about other acquisitions EMC has announced in recent weeks.

    EMC Vice President of Software Product Marketing Dennis Hoffman answered the questions during the teleconference, replying with an emphatic "no" to whether EMC will approach RSA as it did VMware-that is, to let it run as a quasi-independent company under the wing of the mother ship.

    "We intend to integrate RSA's technologies all through our product line," Hoffman said. "We look at this acquisition entirely differently than the VMware addition."

    "In all our sales now, our chief security officer is getting involved," Tucci said. "In just about every survey of IT, security and storage dominate the top of the lists, as far as needs go. This acquisition frankly fills a big need for EMC."

    Next Page: A billion-dollar business?



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    Chris Preimesberger Chris Preimesberger was named Editor-in-Chief of Features & Analysis at eWEEK in November 2011. Previously he served eWEEK as Senior Writer, covering a range of IT sectors that include data center systems, cloud computing, storage, virtualization, green IT, e-discovery and IT governance. His blog, Storage Station, is considered a go-to information source. Chris won a national Folio Award for magazine writing in November 2011 for a cover story on Salesforce.com and CEO-founder Marc Benioff, and he has served as a judge for the SIIA Codie Awards since 2005. In previous IT journalism, Chris was a founding editor of both IT Manager's Journal and DevX.com and was managing editor of Software Development magazine. His diverse resume also includes: sportswriter for the Los Angeles Daily News, covering NCAA and NBA basketball, television critic for the Palo Alto Times Tribune, and Sports Information Director at Stanford University. He has served as a correspondent for The Associated Press, covering Stanford and NCAA tournament basketball, since 1983. He has covered a number of major events, including the 1984 Democratic National Convention, a Presidential press conference at the White House in 1993, the Emmy Awards (three times), two Rose Bowls, the Fiesta Bowl, several NCAA men's and women's basketball tournaments, a Formula One Grand Prix auto race, a heavyweight boxing championship bout (Ali vs. Spinks, 1978), and the 1985 Super Bowl. A 1975 graduate of Pepperdine University in Malibu, Calif., Chris has won more than a dozen regional and national awards for his work. He and his wife, Rebecca, have four children and reside in Redwood City, Calif.Follow on Twitter: editingwhiz
     
     
     
     
     
     
     

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