EMC's Pivotal Buy to Boost Big Data

EMC Corp.’s (EMC - Analyst Report) acquisition of privately-held Pivotal Labs, a provider of agile software development services and tools, is set to boost the company’s offerings in the big data segment. The acquisition is being made through an all cash deal, but the amount of cash paid was not disclosed. Moreover, EMC stated that the acquisition will not impact fiscal 2012 GAAP or non-GAAP EPS.

San-Francisco based Pivotal Labs’ agile project management tool, Pivotal tracker, which allows software developers to collaborate and plan a project. It is being used by 240,000 developers globally and has a distinguished clientele, which include Best Buy Co. Inc. (BBY - Analyst Report), Groupon Inc. (GRPN - Snapshot Report), Twitter and Salesforce.com Inc. (CRM - Analyst Report) to name a few.

Through this acquisition, EMC is expected to increase its capacity to provide services and products in ‘Big Data’ segment. Large organizations are always on the look out for efficient ways to manage the vast amount of data that are generated during the business process and store them for references related to quick and effective business decisions. This presents the big data management companies an enormous opportunity. In a recent report from market research firm IDC, Big Data market in 2015 will reach $16.5 billion from $3.2 billion in 2010.

Further, the company will expectedly reach out to larger number of emerging businesses and large organizations that are trying to implement cloud infrastructure, Big Data, mobile and social applications. EMC is expected to invest into Pivotal’s industry-tested products and services.

We believe that EMC’s vast product portfolio, which has products suitable for any kind of budget, will boost its market share going forward. Moreover, with strong balance sheet and incremental revenues, the company’s strategic acquisitions will have a positive impact in the long run.

Beside the increasing adoption of cloud computing technology will significantly drive the demand for EMC’s virtual infrastructure products, which in turn is expected to be accretive to top-line growth going forward. Further, EMC’s leading position in the emerging economies of the Asia-Pacific and Africa will boost its profitability, as higher revenues from these markets will offset a sluggish growth in the Americas and Western Europe going forward.

However, increasing competition from companies such as International Business Machines Corp. (IBM - Analyst Report) and Hitachi Data Systems in the big data segment are the near term head winds.

Thus, we remain Neutral over the long term (6-12 months). Currently, EMC has a Zacks #3 Rank, which implies a Hold rating in the near term.