EMC's Big Bet

Nearly a week after EMC announced its purchase of security leader RSA for $2.1 billion, it's time to tally the initial reactions. (See EMC Secures RSA for $2.1B.) So far, it looks as if users are optimistic about the deal, while Wall Street isn't.

This comes as no surprise. The combination of security and storage is incredibly attractive to customers who now juggle a multiplicity of products and vendors. "The integration of security management in hardware, as opposed to a plug-in, is a good move," Sanin Rahman, software engineer at content management consultancy Armedia told Byte and Switch senior editor James Rogers. "Oftentimes you have all these different components that come together, and they are not always compatible." (See Users Welcome Super-Deal.)

The question is whether EMC's acquisition of RSA will in fact result in the kind of integrated products Rahman and others anticipate.

The vendor's track record isn't all that great in this regard: After spending $260 million to buy management software firm Smarts in December 2004, EMC didn't release anything linking Smarts to storage kit until March 2006. (See EMC Gets Smarts and EMC Smartens Its NAS.) EMC didn't extend Smarts' root cause analysis to Fibre Channel until April 2006. (See EMC Stays Smart.)

Product integration may not be a priority for EMC this time either. It looks as if EMC is making RSA a separate EMC Information Security Division, run by RSA CEO Art Coviello. (See Did EMC Overpay?) This is the tack EMC took after it bought VMware in December 2003, and it allows EMC to continue a profitable business without worrying about extra product development.Observers have their doubts about EMC's ability to digest RSA effectively at all. According to results from our latest poll, 54 percent of 196 respondents say integrating EMC's and RSA's product lines and companies is the biggest post-merger challenge EMC faces.

Meanwhile, Wall Street wonders whether EMC has bitten off too much financially something investors wondered after the vendor's acquisiton of Smarts. (See Did EMC Overpay? and EMC 'Paying Too Much' for Smarts.) According to Byte and Switch's newly upgraded Index Watch, shares of EMC, trading at $10.93 this afternoon, appear to be trending downward – hardly a vote of confidence.

The question on investors' minds appears to be whether EMC can execute on its management's ambitions. While EMC certainly had the money to make this deal, the move is a bold, clear bid to push the company beyond storage – way, way beyond, into territory populated by formidable would-be foes like Cisco and Microsoft.

There is also a more immediate threat from the likes of IBM, HP, and Symantec – the latter two rumored to also have had designs on RSA. These companies have similar goals to EMC's, and unlike EMC, they have been diversifying their IT offerings for years. Can EMC, like HP and IBM before it, parlay its success in one or two areas into a much broader business?

Doubters abound. Thirty-two percent of respondents to our poll think EMC is challenged not to dilute its focus too much. And in a note last week, financial analyst Aaron Rakers of A.G. Edwards had this to say: "We are becoming increasingly concerned that EMC is spreading itself too thin."It will take years to see how it all turns out. Perhaps EMC will regret this decision; maybe RSA will. Then again, the volatile storage market leaves plenty of room for the unexpected.

— Mary Jander, Site Editor, Byte and Switch

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