Vulnerable Veritas

The merger of Symantec Corp. (Nasdaq: SYMC) with Veritas Software Corp. (Nasdaq: VRTS) may be just the break Veritass rivals have been waiting for.

According to IDC, Veritas holds 40.4 percent of the backup and archiving market. While it's maintained a solid lead despite some slip-ups in recent years, industry sources think the competition will have a good chance to make up ground while Symantec integrates Veritas after forking over $13.5 billion in stock (see Symantec & Veritas: It's a Deal).

“There will be about a year of uncertainty that all of Veritas's competitors will attempt to leverage,” says a consultant who asked to remain unidentified. “I expect EMC and CommVault to get the most market share gains out of it. But in the end, the market share moves should be marginal.”

Marginally or not, EMC Corp. (NYSE: EMC) and privately held CommVault Systems Inc. are certainly looking to gain. You can bet BakBone Software Inc. (Toronto: BKB), Computer Associates International Inc. (CA) (NYSE: CA), and IBM Corp. (NYSE: IBM)are as well.

Have your doubts? Consider what an EMC spokesman has to say: “Mergers are disruptive. They always create FUD in the marketplace and among employees. [Veritas and Symantec] may both be software companies, but they have to integrate completely different sales organizations.”EMC, first overall in storage software, is already looking to gain ground with products it picked up from Legato last year (see EMC Closes Legato Acquisition). A stalled Veritas would be a dream come true.

“This merger makes no sense to me at all. EMC is going to swoop down like big birds to feed on them,” asserts storage analyst Arun Taneja of Taneja Group. He says it’s the wrong time for Veritas to merge. The company was just beginning to realize it needed to better integrate its software products, many of which joined its portfolio through acquisitions of other companies. Now it has another full-blown integration to deal with.

The history of acquisitions in the IT space in general has taught some painful lessons. First, merging two big companies doesn’t necessarily make a better one. Look at Hewlett-Packard Co. (NYSE: HPQ) and Compaq. Second, product integration almost always takes longer than expected. Network Appliance Inc.’s (Nasdaq: NTAP) acquisition of Spinnaker and McData Corp.’s (Nasdaq: MCDTA) acquisition of Sanera come to mind (see NetApp Annexes Spinnaker and McData Goes on Offensive).

Why is Veritas willing to risk complications like these? Some jaded observers see the deal as a vote of "no confidence" from the Veritas board for CEO Gary Bloom, who has run the company since leaving his post as executive VP at Oracle Corp. (Nasdaq: ORCL) in November 2000.

Bloom’s tenure at the top has been rocky. Over the past few years, Veritas survived a string of embarrassments that could have sunk a smaller company, including:

Veritas has also been slammed for lack of innovation. The best example of this came last August when it purchased email archiver KVS for $225 million (see No Brainer: Veritas Buys KVS). Some said that deal resulted from Veritas's late and faltering attempt on the email space with Data Lifecycle Manager (see Veritas Manages Data Lifecycles).

Others point to Symantec, which has drawn its own share of criticism, as a partner that could use a bit of propping up. It's a view that Symantec CEO John Thompson trounced on a conference call with analysts to announce the merger: "This is not a defensive move by any stretch of the imagination. It's an offensive move... This is a powerful, powerful combination with incredible synergies and leverage."

There are outsiders, too, who take a rosier view of the deal. Enterprise Strategy Group senior analyst Jon Oltsik says the merger makes sense because customers want to combine the security Symantec provides with the data protection that Veritas sells.

“I don't think the storage industry gets this merger at all,” says Oltsik, who tracks information security for ESG. “We see more and more Wall Street companies designating a chief risk officer who owns security, data protection, and disaster recovery.”

Ultimately, the next few months will tell us whether the naysayers are wrong, or whether Veritas could have used its own kind of chief risk officer before making its move.— Dave Raffo, Senior Editor, Byte and Switch