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7/19/2006
09:57 AM
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RSA Ramps Up Revenues

The security vendor, soon to be part of EMC, enjoys record Q2 revenues, but profits take a hit

RSA Security, on its way to becoming a division of EMC, reported record quarterly revenues today, although the firm's profits fell, thanks partly to the EMC acquisition. (See RSA Announces Earnings and EMC Buys RSA.)

RSA reported revenue of $94.4 million for the quarter, up 23 percent from the same period last year, and above analyst estimates of $91.25 million. However, the vendor's GAAP net income was $2.8 million, or 4 cents per share, compared to net income of $8.4 million and 12 cents per share in the year ago quarter.

Excluding a number of items, such as stock-based compensation charges and transaction fees associated with the EMC acquisition, the company would have reported net income of $10.6 million, or 14 cents per share, in line with analyst estimates.

Speaking on a conference call tonight, RSA execs said that the vendor's authentication business helped drive up revenues, particularly in the enterprise space. (See RSA Clinches Record .) The company, according to its CFO, Charles Kane, shipped approximately 4.2 million authentication credentials during the first half of 2006, an increase of 100 percent on the same period last year.

These sentiments were echoed by CEO Art Coviello, who will eventually head up EMC's new Information Security Division. "Our data protection business remains a solid part of our overall business," he said, adding that the pipeline for RSA's centralized key management products is also strong. But Coviello was less forthcoming about the specifics of the integrated EMC and RSA product lines, instead talking obliquely about the need for "users to be looking at security in an information-centric way."

In response to a question from an analyst, however, Coviello hinted that RSA will use EMC's extensive links with the U.S. government to boost its federal business, as well as opening doors in markets outside of America. "I am sure that they are going to help us in specific verticals, and I am sure that they are going to help us geographically," he explained.

Last month EMC stumped up $2.1 billion to get its paws on RSA in a move which went against the grain of EMC's avowed intention to acquire small companies, or what EMC CEO Joe Tucci describes as "string of pearl" acquisitions. (See EMC Secures RSA for $2.1B, EMC's Blockbuster, and Did EMC Overpay?.)

Since then, EMC, has had to deal with its own financial problems, with Tucci blaming himself and senior management for the company's poor revenue result last quarter. (See Tucci: EMC's Problems 'Self-Induced', and EMC Reports Earnings.)

Initial user reaction to the deal, however, has been positive, with IT managers increasingly looking for security technology to be built into their storage hardware. (See Users Welcome Super-Deal.)

By acquiring RSA, EMC gets its hands on an extensive array of encryption technologies, as well as the vendor's SecurID authentication offerings. Up until now, EMC has mainly focused its security efforts on back-end systems, although RSA could open the door to the both the consumer market and desktop users. (See RSA Unveils Data Protection, RSA's Master Key Plans, and RSA to Access Mid-Sized Businesses.)

For its part, RSA has also been edging closer to the storage market. The vendor recently announced plans to extend its centralized key management software to new areas, such as databases, file systems, and (eventually) mobile devices. Earlier this month, RSA teamed up with Protegrity to integrate its Key Manager software with the latter's encryption offerings. (See RSA's Master Key Plans.)

Certainly, security is the main area where users are looking for EMC to beef up its efforts. Of the 322 responses to a recent Byte and Switch poll, some 55 percent said the storage giant should target security for its next acquisition. This area was identified as the biggest gap in EMC's product portfolio. (See EMC Eyes SMB Push, and EMC’s MVP.)

— James Rogers, Senior Editor, Byte and Switch

  • EMC Corp. (NYSE: EMC)
  • RSA Security Inc. (Nasdaq: EMC)

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