EMC Gets Smarts

EMC Corp. (NYSE: EMC) will spend $260 million in cash to acquire System Management Arts Inc. (Smarts), an 11-year-old vendor of event reporting and correlation software for networked systems (see EMC Acquires Smarts).

The move nabs a key management player for EMC. Privately held Smarts specializes in a patented modeling language that locates and identifies devices and systems in a distributed network, gathers information about them, and correlates the data to determine status and make predictions.

Smarts, which competes primarily with Micromuse Inc. (Nasdaq: MUSE), correlates and reports events in a range of environments, including IP, IP multicast, IP telephony, MPLS, and optical transport networks. Smarts integrates its event reporting with a range of network and systems management products, such as OpenView from Hewlett-Packard Co. (NYSE: HPQ), various Tivoli programs from IBM Corp. (NYSE: IBM), and the Patrol series from BMC Software Inc. (NYSE: BMC).

Smarts claimed 25 percent growth from 2003 through 2004, moving from $48 million in revenue last year to $60 million this year. It claims 175 service provider customers and more than 4,500 additional customers through OEM partnerships with Cisco Systems Inc. (Nasdaq: CSCO), Ericsson AB (Nasdaq: ERICY), IBM, and a range of integrators.

EMC wants to apply Smarts' event correlation to its storage and SAN management wares, and ultimately to a broader range of information lifecycle management (ILM) tools, a key focus for EMC (see Tucci Touts ILM). Smarts will eventually augment software from other parts of EMC, such as Documentum, Legato, and VMware, to unify event reporting from various points in the IT infrastructure."Storage and data networks are coming together in information networks," said Howard Elias, executive VP for corporate marketing in EMC's Office of Technology, on a conference call with analysts this morning. "Customers are asking us for more consistent management of information flows... Smarts can gather events and apply correlation to any component visible or virtual."

This won't happen fast. Smarts products will show up in the EMC line "in the medium term," augmenting the next releases of key software products, Elias said. That could take well over a year to materialize. Financially, the Smarts acquisition isn't expected to affect EMC's 2005 earnings per share either positively or negatively. Eventually, though, EMC says it expects the Smarts business to exceed EMC's overall growth, which is topping 30 percent year-on-year for 2004.

As to integration, EMC will incorporate the roughly 300 Smarts employees in its recently formed EMC Software Group (see New EMC Group Jabs Veritas). Smarts CEO and founder Shaula Alexander Yemini and CTO Schmuel Kliger will stay on to help ongoing development. The Smarts sales team will continue as a separate specialized entity under the EMC sales umbrella. Its engineering group will also stay as it is for now.

This is the third time in as many months that EMC has dipped into its $7 billion war chest to make a software aquisition. But it's a much bigger buy than Allocity Inc. in November or Dantz Development Corp. in October (see EMC Snacks on Software Startup and EMC Dances With Dantz).

There are also more risks involved. The purchase clearly signals EMC's focus on expanding its competition with Veritas Software Corp. (Nasdaq: VRTS). Despite EMC's naysaying, that company's profile has altered considerably with its acquisition by Symantec Corp. (Nasdaq: SYMC), presenting a bigger potential threat (see Symantec & Veritas: It's a Deal).What's more, Smarts' focus has been heavily on IP networking. Now that it will be used primarily for storage management, its OEMs, partners, and customers, including Cisco, could rethink their dealings with the firm. The impressive growth and product roster could founder as a result.

For now, though, EMC's touting its latest acquisition as a no-negatives gain, one aimed at strengthening its storage management capabilities while fueling its longer-term information management goals.

Mary Jander, Site Editor, Byte and Switch