Can EMC 'Unite the World Through Content'? Page 2


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The Goods

Documentum has more than 2,500 customers, some of which double with EMC's own base, and 550 channel partners. In addition to the 265 engineers EMC stands to inherit from this purchase, Documentum's current President and CEO Dave DeWalt will join EMC as president of the Documentum division and executive vice president of EMC, while maintaining the company's headquarters in Pleasanton, Calif.

Documentum has a number of software products EMC plans to integrate with its Legato ApplicationXtender content management software. In document management, there is Content Server, Content Intelligence Services, and Content Services for Applications and Workflow Manager. In records management, EMC plans to plug gaps with Records Manager, and Records Services for E-mail. EMC will use Content Server and Rich Media Services for digital asset management.

EMC will employ the assets of Documentum's acquisition of eRoom for real-time services collaboration in conjunction with its own OnCourse product. In the area of compliance and messaging management, Documentum's Document Control Manager and GXPharma will be integrated with Legato's EmailXtender. Lastly, for Web content management, EMC will employ Content Exchange Services/Web Publisher products.

All of these products align with EMC's ILM strategy to completely manage their customers' data flow, a method EMC believes will help carry its software sales to new heights, as well as give it the upper hand over rivals such as IBM.

Analysts Chime In

Investment firm Deutsche Bank was bullish on EMC's move despite issuing a hold rating the day after the announcement.

"We believe the deal makes sense from a strategic standpoint," the firm stated. "DCTM clearly fits within EMC Information Lifecycle Management concept and will help drive EMC software revenue toward its 30% target. However, the purchase price appears relatively rich when compared to the sales multiple offered for Legato this past July...We believe the proposed purchase makes strategic sense, although the purchase price appears a bit steep."

Based on yesterday's closing price of $14.45, EMC will be paying an aggregate of $1.7 billion in stock, or 5.3 times Documentum's expected 2004 revenue of $322 million. EMC did pay a 29 percent premium on Documentum by most counts, but this doesn't detract from the importance of the move, according to DB.

Gartner analyst Carolyn DiCenzo says the move was hardly surprising given EMC's full attention to an ILM strategy, which it took public at its annual analyst meeting this past August. And while many rumblings have suggested Oracle might have been considering acquiring an ECM concern like Documentum, diCenzo believes EMC's competitive move was more of a strike against IBM, which has a number of content management pieces in its five major software brands.

"IBM doesn't have an information lifecycle management story," says DiCenzo. "They already have a content management story and the pieces for ILM, but it's in their vertical stacks. EMC's key challenge here, as it was for Legato, is integration. If EMC can pull off an integrated solution that takes advantage of data migration, policy-based management of content, which is the piece they get from Documentum, they will be in good shape."

This could potentially vault EMC over IBM in the hunt for new customers and market share, DiCenzo told internetnews.com, noting that while IBM has backup and recovery in Tivoli, they are weak when it comes to e-mail archiving, a key piece of the ILM puzzle.

"IBM keeps their assets very compartmentalized, which has usually been EMC's way, too," she continued. "The winner will be the one who brings an integrated solution that seamlessly links processes end-to-end, or else customers get individual point products. It's always comforting to a customer to go to one vendor for what they need. Customers are often willing to take 'good enough' if they can get it from one place."

Sageza Research summed up its thoughts on the acquisition bid.

"With Documentum's technology in hand, EMC can now put forward to its customers significant means by which they can craft more granular filters to all forms of content, beyond and complementary to what is stored in relational databases," Sageza analysts Jim Balderston and AJ Dennis wrote in a research note. "When one considers the sheer volume of contracts, basic records, medical files, and other such unstructured data in the enterprise, the logic of providing the ability to manage the authenticated access, utilization, replication, and recovery of this information in a storage network seems obvious.

"As such, we believe this acquisition, along with the Legato transaction, offers concrete proof that EMC's strategic software charge, to deliver significant software value add to its storage offerings, is real and made of stuff much sturdier than most strategic marketing communication campaigns. This acquisition tells us that EMC is pursuing a cogent, well-considered strategic vision that could significantly differentiate the company from most of its current competitors."

Page 3: Inside the ECM World

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