Zacks_Analysts' Blog : EMC's RSA Unveils New Products - Analyst Blog

RSA, the security division of EMC Corp. (EMC) recently unveiled a number of new products, which boosts its cyber security product portfolio. RSA announced the availability of NetWitness Spectrum that automatically detects, analyzes and quarantines malware missed by the preventive tools in an enterprise’s network.

EMC acquired NetWitness Corporation, a privately-held network security analysis solutions provider, in April 2011, to boost its product portfolio and customer base.

The new NetWitness Spectrum is developed on the popular NetWitness network security monitoring platform, which is designed to enable enterprises to record and analyze all network traffic. NetWitness Spectrum re-uses the captured data and applies four distinct techniques to investigate and prioritize malware-related events on a real time basis.

RSA has also forged new partnerships with ThreatGRID and GFI SandBox, integrating their malware analysis solutions into its products. The new NetWitness Spectrum 1.1, which is expected to release in the fourth quarter of 2011, supports Adobe Inc.’s (ADBE) PDF format, Microsoft Corp.’s (MSFT) Office Software portfolio and JAR files.

RSA is also offering software developer kits (SDKs), designed to build additional layers of security into mobile applications through the integration of RSA SecurID and RSA Adaptive Authentication solutions. The kit is expected to boost user confidence on mobile applications built for accessing sensitive data related to businesses and banking.  RSA SecurID Mobile SDKs are already available for all leading mobile platforms, with the RSA Adaptive Authentication Mobile SDKs coming in November 2011.

We believe the new products will boost EMC’s market share going forward. We also believe that the strong growth from new products will compensate for the loss EMC suffered from the replacement of the SecurID tokens after its widely used technology was breached early this year.

SecurID provides an additional layer of protection to private clouds and important computer networks by working in sync with back-end software, generating an additional password only known to the holder of the device. However, this mechanism becomes vulnerable once a hacker comes to know of the additional password.

According to a recent report from news agency Reuters, two groups acting on behalf of a single nation state were behind the March attack on RSA. The hackers used the stolen information to access Lockheed Martin Corp.’s (LMT) data base, which forced EMC to offer replacement SecurID keys to all its customers. EMC took a charge of $66.0 million in the second quarter of 2011.

EMC remains focused on developing products which will effectively thwart security attacks globally. EMC announced its intention of spending $3.0 billion on acquisitions, with security to be the other priority besides storage. We believe this policy will boost EMC’s dominant position (70.0%) in the cyber security market over the long term.

Recommendation

We believe cyber security has been the hottest and most debated topic in 2011, particularly due to the string of attacks on major corporations and government agencies, which has shown the vulnerability of the present security systems. Countries and corporations are tightening Internet security to tackle cyber crime, developing strategies to upgrade government computer systems and expand cooperation with other countries. Efforts to improve coordination within the private sector are also increasing.

We believe that the increased spending from government and large enterprises is a boon for EMC, likely to result in new and innovative products. However, the earnings growth will be tempered by rising costs, as the company continues to replace the SecurID tokens.

There is also the risk of deterioration in customer confidence and increased pressure for more sophisticated solutions.

We expect EMC to step up investment in research and development, which could negatively impact earnings growth in the near to medium term. However, this is a necessary expense in our opinion, given the momentum in cloud computing and constantly increasing scope for growth.

However, competition is heating up, especially in the storage, networking, security and virtualization space, as EMC is increasingly pitted against other technology stalwarts, such as Intel Corp. (INTC), International Business Machines Corp. (IBM), NetApp Inc. (NTAP), Hewlett-Packard Co. (HPQ), Unisys Corp. (UIS) and Hitachi Data Systems.

We maintain a Neutral rating on EMC over the long term (6-12 months). Currently, EMC has a Zacks #4 Rank, which implies a Sell rating in the near term.