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EMC 'Paying Too Much' for Smarts: Page 2 of 5

The OSS Observer man points to the recent revenues experience of fault management market leader Micromuse Inc. (Nasdaq: MUSE), which managed annual sales growth of 16 percent in fiscal 2004 (see Micromuse Posts Q4 Profit).

Kelly says EMC's offer suggests the storage vendor believes Smarts can build its revenues by between 40 percent and 50 percent over the next four years. That would be a very optimistic target, says Kelly.

Naturally, EMC thinks the price is "in the right ballpark. We're paying for a company, its technology, and its future potential," says an EMC spokesman. "This is an acquisition of technology that will be strategic to EMC in the coming years," he adds.

At least Kelly agrees that the deal makes strategic sense for EMC, as he believes the Smarts' root-cause analysis software is well suited to storage networks.

But the analyst also believes the deal will see Smarts direct more resources into enterprise product developments, and away from the increasingly important carrier market. "I think the EMC acquisition will definitely distract Smarts's focus on the service provider market," says Kelly.