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Behind EMC's New Software Splash

Grab your popcorn, sit back, and get ready to enjoy the action of this summer's blockbuster. In a move today that should realign the storage software industry, EMC Corp. (NYSE: EMC) announced plans to acquire Legato Systems Inc. (Nasdaq: LGTO), driving straight for Veritas Software Corp.'s (Nasdaq: VRTS) jugular (see EMC Gobbles Legato).

The merger, which has been rumored off and on for two years now, holds the potential to seriously reshape not only the companies involved, but also the dynamics of the storage software market itself.

"This is a watershed event," says John Webster, an analyst with the Data Mobility Group. "It's in the software realm, which is obviously EMC's stated future direction... and information lifecycle management looks like it will dominate a lot of their software marketing... That certainly encroaches on Veritas's space."

Steve Berg, a financial analyst with Punk Ziegel & Co., agrees that it will make EMC and Veritas more direct competitors than they've been in the past. "Veritas had a fairly easy job of competing against Legato as a standalone [entity], but as part of EMC, this is a much more serious competitive threat," he says.

And that seems to have been the point of the deal. As EMC has watched the hardware side of its business slow to a crawl over recent quarters, it has openly coveted the prospect of snatching more of the juicy storage software market away from pure software players like Veritas and Computer Associates International Inc. (CA) (NYSE: CA). Once completed, the Legato acquisition should catapult the storage giant closer to its goal of software sales accounting for at least 30 percent of its revenue (up from 22 percent in the most recent quarter).

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