Can EMC Romance SMBs?

Iomega to EMC: Will You Take All of Me?

Data storage giant EMC (NYSE: EMC) is pitching to buy storage provider Iomega, but without the ExelStor Group, the China-based disk drive maker that Iomega (NYSE: IOM) was already looking to buy. Will EMC be able to capture Iomega alone? If so, what would the enterprise data provider get?

For one, analysts say, EMC would get itself some traction in a market that it needs.

“EMC’s been working to get into the SMB market for at least four years. Having Iomega would give it instant brand recognition,” Greg Schultz, StorageIO Group, told InternetNews.com.

Charles King, president and principal analyst, Pund-IT, echoed the sentiment. “If the deal happens, it would provide a safe haven for Iomega as it would benefit from having a well-heeled innovative company behind it at a time when the consumer IT business is under some stress.”

An acquisition would be a natural progression for the two companies, given their long-standing partnership. Iomega resells EMC’s Retrospect Express software on its REV Back Drives as well as EMC’s SMB-oriented Lifeline products.

“The companies are already partnering, so the next step would be to incorporate the [EMC] Mozy solution in that mix and engage Iomega customers with either an online backup strategy or a complement to the Lifeline solution with ‘cloud’ storage,” Lauren Whitehouse, analyst at the Enterprise Strategy Group, told InternetNews.com in an email. “Iomega has the brand and distribution channels to reach a consumer through [the] SMB market, which EMC would be able to use to its advantage,” she added.

With or Without ExelStore?

EMC pitched an Iomega merger in early March with a $3.25 per-share offer. At the time, the $178 million price tag represented a 22 percent premium over Iomega’s current market value.

After the zip drive and back-up hardware provider demurred, EMC sweetened the offer to about $205 million by offering $3.75 for Iomega’s 54.8 million outstanding shares. And it was also clear about ExelStor being part of an EMC purchase of Iomega: Three’s a crowd.

“The scope of EMC’s offer is to acquire Iomega as it’s currently structured.” Dave Farmer, EMC company spokesperson, told InternetNews.com. Still, that declaration isn’t slowing Iomega’s pursuit of the ExcelStor, another digital storage technology maker.

“As announced in December, Iomega expects the ExcelStor acquisition to potentially close sometime mid-year 2008. Iomega expects to make an announcement about its discussions with EMC once those discussions have concluded,” Chris Romoser, senior director, Iomega worldwide communications, told InternetNews.com.

Next page: Crowding into a promising future

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Promising Future

Although all the companies involved declined to comment, it’s clear they all see market opportunities with data storage for smaller businesses.

A new study from IDC and EMC reports that data requirements are growing at an annual rate of 60 percent.

Combine that with the growth of the SMB enterprise base and you’ve got the equivalent of a data explosion on the horizon. As one pundit put it, SMBs are a real engine in U.S. business growth. They employ about half of all private-sector employees and have generated an estimated 60 to 80 percent of new jobs annually over the last decade.

No wonder that big systems providers, including Sun and IBM are trying to woo SMBs with storage products these days.

EMC knows that it has plenty of competition for this slice of the market.

“This is part of the current trend of bigger companies, the multinationals, wanting to work with the consumer market,” noted Brian Babineau, an analyst with Enterprise Strategy Group. “The thing is, EMC isn’t Dell and just can’t show up,” he told InternetNews.com. “They have to go in under the guide of a well-known brand like Iomega.”

Iomega provided no time frame on when, if at all, a deal with EMC might be done. EMC, meanwhile, would only say its due diligence on the deal sould be done in a few weeks.

“EMC doesn’t spend money like drunken sailors on a Saturday night. The only bad that could happen is if EMC, for some reason, tries to change the DNA and culture of Iomega, or doesn’t nurture and care and feed Iomega,” said Schultz. “But I don’t see that happening as it’s got one of the best acquisition track records around.”

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