EMC Goes Soft

EMC Corp. (NYSE: EMC)bit the bullet Monday, announcing a raft of software products that will manage other vendors' storage systems (see EMC Automates).

Dubbed AutoIS (Automated Information Storage), the software supports network devices and storage arrays from Compaq Computer Corp. (NYSE: CPQ), Dell Computer Corp. (Nasdaq: DELL), Hitachi Data Systems (HDS) , Hewlett-Packard Co. (NYSE: HWP), IBM Corp. (NYSE: IBM), Network Appliance Inc. (Nasdaq: NTAP), and Sun Microsystems Inc. (Nasdaq: SUNW).

Wall Street analysts agree that stiff competition in the form of pricing pressure from HDS and IBM in particular has left EMC with no choice but to break out of its decade-long proprietary shell and work with the market rather than against it.

EMC isn't minimizing the importance of the move. Today marks the beginning of the most significant wave of new product introductions in EMC’s history,” said Joe Tucci, EMC’s CEO, during a conference call on Monday.

EMC has clearly been aware of the need for new software. According to its third-quarter financial report, storage software sales at EMC dropped 27 percent, to $243 million from $332 million in the year-ago quarter (see EMC Bombs Big-Time). The decline came as EMC's sales of storage systems, which include Symmetrix servers, dropped 59 percent.EMC is banking on software to improve its results. Tucci anticipates that software sales will account for 30 percent of EMC’s revenue over the next two to three years, up 10 percent from this year.

His views on the importance of software are echoed on the Street. “Storage network management software is the most important piece of intellectual property to own in this market going forward,” says Clint Vaughan of Salomon Smith Barney.

In a note to investors, Vaughan says EMC's move could put pressure on storage software maker Veritas Software Corp. (Nasdaq: VRTS), although he expects it will take EMC a while to gain all the APIs (application programming interfaces) it needs to manage multivendor environments. Meanwhile, Veritas has some technology of its own on the way to manage these networks -- and the company is expected to provide a sneak preview of this software during its analyst day on November 8.

Veritas's progress in this market raises the question: Given that a host of independent software companies already are offering heterogeneous storage management, why would a customer trust its hardware vendor to provide this capability?

They won’t, according to most analysts.“Believing EMC will be hardware-independent is going to be very hard,” says Daniel Niles, analyst with Lehman Brothers.

“Just how tightly EMC’s software will manage other vendors' hardware remains to be seen,” says Harsh Kumar, storage analyst at Morgan Keegan & Company Inc.

There are other difficulties too, such as the war of words that's arisen between EMC and HDS over precious APIs. The software APIs that drive specific vendors' gear are necessary for the creation of software that manages multivendor storage kit.

Apparently, EMC isn't ready to share its APIs with rivals. “We have requested their APIs on a quid-pro-quo basis, but so far they have refused,” says Peter Foy, director of marketing at HDS.

“I don’t know where they get that information,” says James B. Rothnie, CTO, EMC Corp., who indicates that HDS has had nothing to offer on its end. “We’ve had APIs for a very long time, they only got theirs a week ago.” Apparently, this is a reference to HDS's recent software announcement (see HDS Launches HiCommand).Rothnie admits there are different levels of integration and says that “close integration” is not required, “to do a good job of management.” EMC can manage HDS storage with just the interfaces HDS provides to its customers, he says, “although it would be better to have access to their APIs."

Industry sources say this approach is not the most desirable. “They might be able to do some crafty reverse engineering with some of this information, which may not be the best integration, but it will work,” says Mark Kelleher, analyst with First Albany Corp.

Still, he says it is going to be “very tough for EMC to get the majority of hardware vendors to work with it, as they will be much more comfortable working with an ISV like Veritas, which does not sell competing hardware.”

Regardless, Rothnie says he's confident that “thousands” of customers will buy the software just to manage EMC storage. In almost every case, he acknowledges, these customers have other storage on the network -- a situation he says will allow EMC to prove it's up to the challenge. “It will be very easy to determine if it really works,” he says.

— Jo Maitland, Senior Editor, Byte and Switch http://www.byteandswitch.com