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Tucci Aims For 'One EMC'

CEO vows no more big buys, as security and other acquired pieces are integrated

Following a strong finish to 2006, EMC CEO Joe Tucci says the company will focus this year on something customers and investors have demanded -- pulling disparate pieces collected in recent years into a cohesive product line. (See BMC Manages Retailer's Storage and Put Away the Check Book, Joe.)

Tucci says this will be the year of integration for EMC following 21 major acquisitions over three years, including some outside of its core storage realm.

"One EMC is a huge initiative for us, huge," Tucci said today on EMC's earnings conference call. "For EMC, 2007 is the year we have to break out. The focus and execution is on deeper integration of development centers and technologies. It is our intention to not acquire any large companies in 2007."

If that sounds familiar, Tucci also said EMC was finished with acquisitions back in October -- two weeks before spending $165 million on Avamar. (See EMC Grabs Hatchet and EMC Picks Up Avamar.) Perhaps that's why he hedged a bit today, saying he would reconsider if a good enough opportunity comes along. He also said it's likely EMC will make "several tuck-in acquisitions, much like Kashya, Avamar, and Network Intelligence." Those deals cost EMC between $153 million and $175 million.

EMC reported revenue of $3.21 billion for the quarter, up 19 percent year over year and 14 percent from the previous quarter. That figure compares favorably to the company's guidance of at least $3.16 billion in the quarter.

For the year, EMC reported $11.16 billion in revenue, up 15 percent from the previous year. EMC did not give guidance for this quarter, but forecast revenue of at least $12.7 billion for 2007.

Although it is early in earnings season, Wall Street analysts say EMC's results suggest market share gains. "We believe competitive dynamics are shifting in EMC's favor," A.G. Edwards analyst Aaron Rakers wrote in a research note today. And Dan Renouard of R.W. Baird wrote that it appears "EMC is taking share from competitors."

Despite the strong finish, Tucci did not forget the first half of 2006 was rocky. (See Tucci: EMC's Problems 'Self-Induced'.)

"I was proud of EMC last quarter, but to be totally candid, 2006 was somewhat disappointing because of inconsistent quarterly performances," he said. "Execution was choppy and not up to EMC standards. 2006 was a year of two distinct halves. The first half was barely adequate and we had a clear miss in the second quarter. In the second half of 2006, EMC came to life."

Tucci says EMC will have a "robust" product refresh schedule this year. He says to expect more software bundles, and he says new security will show up across the storage platform.

"Point products are driving customers nuts," he says. "I think more than anything else, rather than buying point software solutions, customers want packages, bundles, and solution sets."

Tucci pointed to the Kashya and Avamar acquisitions as contributing to "next generation" backup and recovery products. And regarding security, Tucci says it will be a major focus of 2007 integration. (See EMC Secures RSA for $2.1B.)

The largest deal EMC made last year was its $2.1 billion acquisition of RSA Security. EMC's security unit (RSA and Network Intelligence) contributed $114 million in revenue in the fourth quarter -- which hardly justifies the acquisition price of RSA.

But Tucci says identity management and authentication is a "white hot" area, especially for banks requiring two-factor authentication. EMC is also incorporating encryption technology from RSA into appliances and storage products.

"Customers are learning they cannot secure what they cannot manage," Tucci said today. "Securing information requires securing data, people who access the data, and applications that connect to them."

— Dave Raffo, News Editor, Byte and Switch

  • A.G. Edwards
  • EMC Corp. (NYSE: EMC)
  • Robert W. Baird & Co. Inc.
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