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Rick Whiting
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In Depth: The Transformation Of EMC

Best known as a storage hardware vendor, EMC has spent more than $7 billion to become more of a software and services company. Is the strategy working?

There are several highly recognizable three-letter names in the computer industry, each closely identified with a specific market segment: IBM--services; SAP--enterprise software; EMC--data storage hardware.

But wait a minute. EMC, the longtime storage powerhouse, has spent more than $7 billion on some two dozen acquisitions since 2000, almost all of them software and most only indirectly related to storage. Given that, what is EMC's strategic focus these days?

It's changed, though even EMC's CTO, Jeff Nick, admits that explaining the company's new strategy is a challenge. "'EMC, the data storage company' is easy to get your head around," he says. "'EMC, the information infrastructure company'--what is that? It's a message we haven't honed."

That problem gets tougher this week when EMC discloses another acquisition: Network Intelligence, a developer of software for security event management, which EMC is buying for approximately $170 million. Also this week, EMC will complete its $2.1 billion acquisition of RSA Security, the data-encryption and identity-authentication technology vendor. And the company will introduce Infoscape, a content management application for unstructured data such as Word documents and E-mails that was created using technology from several of its acquisitions.

Network Intelligence and RSA join content management software vendor Documentum, virtualization specialist VMware, and digital-rights management application vendor Authentica, a few of the most significant in EMC's portfolio of acquired apps in the growing market for information management technology. This bought-and-paid-for expertise is meant to transform EMC from a purveyor of storage boxes into a one-stop provider of technology for collecting, managing, delivering, and securing business information.

That broad vision isn't reality yet, but EMC has managed to lessen its dependence on hardware sales. In its second quarter, ended June 30, software accounted for 39% of the company's $2.57 billion in revenue. That's quite a shift from 2000, when software was only 16% of its sales, and storage hardware represented 70%.


Customers are just starting to get what EMC is about these days, CEO and president Joseph Tucci says

Photo by Jason Grow
The main problem is that EMC hasn't given its customers a clear picture of how all these pieces fit together. "I think customers are starting to get it," CEO and president Joseph Tucci says, "but we're nowhere near where we need to be."

With some acquisitions, such as the $1.3 billion buyout in 2003 of Legato, the backup and recovery software developer, the link to EMC's storage business isn't that tough to see. Even acquisitions such as Documentum and RSA fit within the broad category known as "information life-cycle management"--the process of managing data from its creation or capture to when it's put in long-term storage or deleted. But systems management tools from Smarts or virtualization technology from VMware and Rainfinity--where do they fit?

The buzz-phrase from EMC for describing its strategic focus is "information infrastructure." In an IT world of service-oriented architectures, information itself becomes a service that isn't tied to any particular application. That calls for a technology infrastructure that not only stores and manages information, but also manages the systems that deliver information wherever, whenever it's needed. "We're the information enablement," says Tucci.

EMC has used software to bounce back from a drop in storage sales, but it's not the profit engine of old. Near EMC's Hopkinton, Mass., headquarters, a large office building constructed in 2001 for expansion stands empty, emblematic of the company's boom-and-bust history over the last several years. After reaching $8.87 billion in revenue in 2000, sales shrank to $5.44 billion in 2002, and the company racked up big losses in both 2001 and 2002. Since then, sales have climbed steadily, to $6.24 billion in 2003, $8.23 billion in 2004, and $9.66 billion last year. For the first six months of this year, sales were $5.13 billion, on track to meet the company's 2006 revenue goal of $10.8 billion.

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