EMC Corp. (EMC) recently agreed to buy cloud-computing startup, CloudScaling Group Inc. Per Bloomberg, EMC is paying approximately $50 million for CloudScaling. EMC is all set to hold a cloud event on Oct 28, 2014, where other details regarding the deal will be revealed.
Founded in 2006, San Francisco-based Cloudscaling helps companies to manage their cloud networks using OpenStack software. OpenStack is an open source cloud operating system that controls large pools of compute, storage, and networking resources throughout a datacenter.
Cloudscaling offer solutions that make it easier for computers running OpenStack to connect with public clouds, operated by Amazon Web Services and Google (GOOGL). We believe that this acquisition expands EMC’s cloud computing product portfolio.
Per IDC, revenue growth generated by cloud services will be ten times more than overall revenue growth in the IT industry. By 2015, cloud services will expectedly garner revenues of $16.7 billion.
However, this strong growth opportunity has intensified competition, resulting in consolidation of numerous startups and small cloud-based service providers in the recent past. EMC’s acquisition of Cloudsclaing is in the lines of Cisco (CSCO) and Hewlett Packard (HPQ), who recently acquired Metacloud and Eucalyptus Systems, respectively.
Of late, slowing enterprise storage sales and increasing competition from flash storage providers have been a major concern for EMC. The company continues to face aggressive activism from hedge fund Elliot Management Corp., which being one of the biggest shareholders (2% stake), has demanded that EMC should spin off VMware, to unlock shareholder value.
Reportedly, EMC has also been considering merger deals with the likes of Hewlett-Packard Dell, Cisco and Oracle. Negotiations between EMC and H-P discontinued after the companies failed to reach an agreement regarding financial aspect.
In such a scenario, we believe that EMC is trying to improve its footprint in emerging sectors like cloud computing and mobile management through acquisitions. During the first half of 2014, EMC, along with VMware, bought AirWatch, DSSD and Symplified Inc. We believe that EMC will continue to pursue strategic acquisitions, which will give it competitive edge in the long run.
Currently, EMC has a Zacks Rank #3 (Hold).
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