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Acquisition: EMC gets 'Smarts' about network management

EMC has acquired Smarts for $260M, adding network management and event automation to its growing software portfolio.

Further extending its reach into new markets, EMC Corp. today announced that it will acquire System Management Arts (Smarts) Inc. for approximately $260 million in cash. Smarts is a privately held maker of event automation and network systems management software.

Describing the product on a call with press and analysts, Shaula Alexander-Yemini, Smarts' founder and CEO, used an analogy of a doctor referring to a medical book to match symptoms to a known disease in order to make a diagnosis. "Smarts has developed a 'code book' that maps key network and server device problems to symptoms, and then looks out for these symptoms offering up a solution of what to do when they occur … It doesn't just paint a pretty picture like a lot of the products out there," she said.

Financial details
Smarts expects its 2004 revenues to be between $48 million and $60 million. The acquisition is expected to be completed in the first quarter of 2005, subject to customary closing conditions and regulatory approvals, and is not expected to have a material impact to earnings per share for the full 2005 fiscal year. Smarts' market, according to industry analysis, is $1.8 billion in 2004, and should grow at a compound annual growth rate of 10% for the next four years. Approximately 175 of Smarts users are blue-chip companies sold to directly by the company, with an additional 45 coming from resellers. Smarts' largest OEM partner is Cisco Systems Inc.

Analysts said the acquisition is significant because it represents further movement by EMC beyond storage into the compute side of the data center. "They are kind of sneaking up on this market and will probably make more similar acquisitions," said Steve Berg, analyst with Punk Ziegel & Co.

Tying it back to storage

EMC's goal is to integrate the Smarts software with its ControlCenter storage management software, to perform the same event diagnostics across storage networks. Howard Elias, executive vice president of marketing at EMC, said he expects the Smarts software to be integrated with ControlCenter in the "medium term" ready for the next refresh of its portfolio. He declined to be more specific. "We see a good runway left in traditional event automation and network management … but we see a significant benefit to integration with storage management."

"Automation based on policies and procedures is the next big step for users in dealing with the relentless demand for storage capacity," said Randy Kerns, senior analyst with the Evaluator Group. "EMC has added another major element to its software portfolio that it will develop to address storage management automation."

Smarts software can be deployed either standalone or integrated with existing systems management frameworks. Yemini said the software can feed results into products like BMC Software Inc.'s Patrol, Hewlett-Packard Co.'s OpenView or Computer Associates' Unicenter, or it can take information from these systems.

Management issues

Smarts' 300 employees will join EMC's Software Group but maintain separate engineering. Dr. Shmuel Kliger, chief technology officer of Smart, will oversee integration with EMC's storage management products.

A distinct fear among many analysts is that EMC will actually overextend itself and not be able to successfully integrate all the companies it has acquired and plans to acquire. "This is a classic problem for acquisitive companies," said Punk Ziegel's Berg.

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