EMC Plugs Product Hole With Legato

By Maria Trombly | Securities Industry News | July 14, 2003

EMC Corp.'s acquisition of Legato Systems, announced last week, means that EMC will now be able to offer a more comprehensive range of storage-related products of particular interest to securities firms-including in the area of e-mail archiving.

Before the $1.3 billion stock-swap deal, Hopkinton, Mass.-based EMC was strong in enterprise storage management and storage infrastructure software, but weak in data management software-an area that includes data backups. That's where Legato is strongest, said EMC spokesperson Anne Pace.

"The next big thing in storage is software to manage the complete life cycle of data from inception, to archive, to disposal while assuring business continuity," she said. "This will be incredibly important to our financial services customers who now must keep their data for a certain time to comply with SEC regulations."

According to EMC CEO Joseph Tucci, 30 percent of the company's revenue will come from software because of this deal and others like it. EMC also bought the rights to a storage software product line from BMC Software the previous week. EMC also bought Astrum Software in April for its storage-management software.

Today, 23 percent of EMC's revenue comes from software. Eventually, Tucci said, he hopes to see a full half of the company's revenue to come from software and services.

"EMC is trying to get out of the model where they're just a storage company," said Carl Howe, principal at Maynard, Mass.-based market consulting firm Blackfriars Communication. "Legato gives them a set of software products they need. This is not about just storing stuff. It's about making sure the data is property archived, properly backuped, and properly expired so it's not waiting around for lawsuits to pop up."

Howe predicted that EMC will continue to acquire more software companies and also to develop more products internally. He added that EMC is well-positioned in its space because its main competitors, such as Hitachi, Hewlett-Packard and IBM all have more than just storage to think about.

"EMC is really only one of the top-tier storage firms that doesn't have another business to fall back on," he said. "If you're HP, you can say, Well, I've got printers.' If you're Hitachi, you can fall back on a wide range of things from servers to plasma screens."

EMC, by comparison, is a specialist, Howe said-and this gives the company an edge in the storage market. In addition, since EMC and Legato's products are complementary, Wall Street customers-which, in EMC's case, includes a laundry list including Raymond James, RBC Dain Rauscher, Wachovia Bank and Edward Jones-aren't likely to see a change in pricing, he said. Instead, they're likely to see more convenience as they can buy EMC and Legato products in one place, and the products are likely to become more closely integrated.

However, he doesn't expect to EMC products become less interoperable with those of other firms as a result. "EMC is one of the most vendor-neutral of the storage vendors," he said. "This is their business, make sure they play nicely with others."

According to the company, EMC will leave David Wright as CEO of the Mountain View, Calif.-based Legato. That's good news for Legato's 31,000 customers-including Credit Lyonnais, Daewoo Securities, Legg Mason, R.W. Baird & Co.-who might have been out of luck if a competitor such as Veritas had bought the company to shut it down.
Instead, EMC will continue to develop Legato's product line. "We will now have additional resources to further accelerate the development and delivery of solutions to the market," said Wright.

Tucci said EMC's backup and recovery software, EMC Data Manager, will be integrated with Legato's Networker product and current EMC customers will receive an upgrade that includes Networker.