A leading provider of data storage and security solutions, EMC Corp. (EMC) is expected to face increased scrutiny from a U.S. Senate committee, which oversees Internet policy, as reported by the news agency, Reuters.
The scrutiny follows a recent security encroachment at the military contractor, Lockheed Martin Corp. (LMT), which uses EMC’s security products and services. Lockheed said that it detected the attack immediately and undertook effective countermeasures to prevent any significant data theft.
Earlier, in March 2011, EMC’s security division RSA was also a victim to a sophisticated cyber attack that compromised a widely-used technology for preventing unauthorized access to key corporate/government data.
At that time, EMC had noted that the information could potentially be used to reduce the effectiveness of SecurID, although the company had declined to comment on the type or the quantity of information stolen.
Senators are questioning the reliability of EMC’s widely used SecurID tokens for authenticating the identity of people using the Internet. SecurID helps organizations to exchange sensitive data with customers and third parties by offering an additional layer of protection to the private clouds and important computer networks.
The product prevents unauthorized breach even if a password is stolen. The RSA device, working in sync with back-end software, generates 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.
Security advisors believe that there may be a link between the RSA security breach and Lockheed Martin incident, and hackers may have got sufficient data, which they can use to breach the SecurID systems. However, both EMC and Lockheed have declined to comment on the recent attack.
Rising Cyber Crimes – Cyber attacks have been on the rise in recent times. The sophisticated computer attack reflects the growing risk that companies and governments face from cyber crime. Countries are concerned about the growing number of attacks on information technology systems as hackers look to steal data, intellectual property, money and even sensitive government information.
Besides Lockheed Martin, broadcaster PBS was also a victim of a recent security compromise, when its website was breached by hackers. In recent months, email marketer Epsilon Data Management LLC, South Korea-based Hyundai Capital and PlayStation maker Sony Corp. (SNE) also faced cyber attacks.
Sony suffered a massive security breach in April, which affected more than 100 million online accounts of PlayStation Network gaming service and other online services.
In recent months, US Corporations, particularly defense and oil companies have been favorite targets of hackers. Lockheed had suffered an attack nearly four years ago, when hackers breached its Joint Strike Fighter program.
According to cyber security firm McAfee, Chinese hackers have hacked US fuel companies for years. The campaign, codenamed “Night Dragon” has been in full effect since 2009 and could have begun as early as 2007.
According to the United Kingdom’s security minister, cyber attacks on government, businesses and individuals is expected to cost the country at least £27.0 billion a year.
According to M86 security labs, the growing smartphone and tablet device market, the rise in online banking and a shift from using simple exploit kits to more sophisticated Malware-as-a-Service (Maas) model by hackers are primary concerns for 2011.
Remedies and Countermeasures – 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.
The Federal Government has declared cyber security as a top priority and the Pentagon has set up a new Cyber Command division to deal with rising security threats. The fiscal 2012 budget has allocated $2.3 billion in new and ongoing spending on operational cyber security and cyber security research and development at the Department of Defense (DoD).
Moreover, joint planning efforts on cyber security between the DoD and the Department of Homeland Security have been announced and $119 million to support full operational capability for the new Cyber Command has been proposed.
The budget seeks $459.0 million to support the operations at the National Cyber Security Division and a further $97 million to be spent on improving the security of online transactions, cyber security education, cyber security R&D and network security at small agencies.
The Department of Homeland Security is also employing an automated system known as Einstein 2 and Einstein 3, to protect government agencies' computer systems.
According to the US deputy defense secretary, US defense computer networks have thwarted intrusion from more than 100 foreign intelligence agencies since January 2011. Large corporations and enterprises that handle sensitive data are deploying intrusion software to expose any odd behavior on networks.
Recently, EMC announced that it is taking remedial steps in order to bolster security. EMC is expected to replace the SecurID tokens issued by RSA that often expire in three years.
Conclusion
We believe companies will spend a large portion of their information technology (IT) budgets on cyber security going forward. With increased spending, major industry players are expected to build new and innovative products that will increase competition for EMC over the long term.
Moreover, the security lapse can temporarily hamper EMC’s results, as it could spur a product recall. It could also negatively impact its client base, as companies press for more sophisticated solutions. This will increase pressure on EMC to come up with efficient innovative products, which will increase its research and development expenses, with a corresponding negative impact on profitability.
We are Neutral on EMC over the long term (6-12 months). Currently, EMC has a Zacks #3 Rank, which implies a Hold rating on a short-term basis.
EMC CORP -MASS (EMC): Free Stock Analysis Report
LOCKHEED MARTIN (LMT): Free Stock Analysis Report
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