A leading provider of data storage solutions, EMC Corp. (EMC: 19.40 +0.03 +0.15%) announced the acquisition of privately held data analysis software firm Greenplum Inc., based in California.Greenplum is a provider of disruptive data warehousing technology for data clouds and self-service analytics. Greenplum provides software for data warehousing, enabling big corporations analyze digital data.
The all-cash acquisition is expected to close in the third quarter of 2010, and will not impact EMC’s 2010 earnings. Financial details of the acquisition were not disclosed.
Greenplum will be integrated into EMC’s Information Infrastructure business and will form a new data computing product division in EMC’s portfolio. EMC will continue to sell and support Greenplum’s current line of products and solutions.
Upon closing of the acquisition, Greenplum’s CEO, Bill Cook, will head the new data computing product division. Bill Cook previously worked at Sun Microsystems, which was acquired by Oracle Corp. (ORCL: 23.29 +0.07 +0.30%) in January.
Greenplum’s customers include NYSE Euronext Inc. (NYX: 28.08 -0.05 -0.18%), Skype, Equifax Inc. (EFX: 28.80 +0.03 +0.10%), eBay (EBAY: 20.03 +0.14 +0.70%), T-Mobile and Fox Interactive Media. The acquisition of Greenplum will broaden EMC’s customer base, resulting in higher revenues in the upcoming quarters.
Acquisition Strengthens Competitive Position
The acquisition of Greenplum will improve EMC’s competitive position versus Oracle, the leader in the growing database software market. The acquisition will offer EMC a distinct competitive edge against Oracle’s Exadata database machine.
This acquisition will also help EMC to compete against large payers, such asNetezza Corp. (NZ: 14.24 +0.15 +1.06%), International Business Machines Corp. (IBM: 127.7419 -0.2281 -0.18%), Microsoft Corp. (MSFT: 24.26 -0.1495 -0.61%), Sybase Inc. (SY: 64.79 -0.05 -0.08%), SAP AG (SAP: 47.00 +0.11 +0.23%) and Teradata Corp. (TDC: 31.07 -0.08 -0.26%) that have dominated the database market for long.
Diversify into Software
While EMC has been the overall storage software market leader for eight consecutive years, with a 22.7% market share in 2009 (according to IDC), the expansion into the database software market will allow EMC to diversify outside the core storage business and possibly increase penetration at key customer accounts.
To expand its footprint in the software market, EMC previously announced the acquisition of Archer Technologies. We believe these acquisitions will be accretive to its earnings and provide higher synergies, going forward.
Greenplum’s technology combined with EMC’s virtualized Private Cloud infrastructure will provide customers a broad array of cloud computing, virtualization computing and business analytics solutions.
The rapid growth in cloud computing and business analytics is inducing companies to diversify into this area. We believe EMC’s strong position in the storage market, coupled with its acquisition of budding software companies, rounds out the portfolio and positions the company to become one of the chief beneficiaries of this growth.
Shares Rise
EMC Corp. rose 1.36% (26 cents) and closed at $19.37 following an upgrade by an Oppenheimer analyst to Outperform from Perform with a $22 price target.
According to the analyst, EMC is well positioned to benefit from the strong demand for data storage systems, particularly as cloud computing and digital data storage requirements accelerate. The analyst pointed out that corporate spending in the U.S. and Europe indicates that EMC could post strong results in the next two quarters.
The analyst added that Storage remains a top IT spending priority and EMC is well positioned to benefit from the growing corporate IT spending.
We believe that as a technology leader in the storage category, EMC is well positioned to benefit from the long-term growth in the industry and we expect it to grow above the market in the next few years.
However, we also add a word of caution, given the fact that research firm, Gartner, recently trimmed its 2010 worldwide IT spending forecast to $3.35 trillion, representing a 3.9% increase from 2009. This compares to the previous expectation of a 5.3% increase from 2009. Gartner cited that the European economy debt crisis is having a severe impact on the outlook for IT spending.
Therefore, although EMC is expected to benefit from increased acquisitions, revenue growth, improved storage demand, strategic alliances, strong earnings momentum, impressive free cash flow, a favorable new product cycle and cloud computing initiatives, we believe that the possibility of a slowdown in IT spending is likely dampen results in the near term.Our short-term recommendation on EMC is ‘Neutral’
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