EMC Corp.’s (EMC) security division, RSA security, admitted that its security tokens were breached to access Lockheed Martin Corp.’s (LMT) data base and has offered to replace its customers’ SecurID tokens. RSA security has already started replacing the tokens for government and defense agencies.
After admitting the connection between the hacking attack on Lockheed Martin and the RSA security breach, the executive chairman stated that the nature and purpose of the attacks was to obtain certain secret military information.
Further, EMC is set to replace the Security ID tokens for every customer to protect the intellectual property of clients, including those with multiple customers dealing in financial transactions.
In March this year, EMC had denied any theft of data after it was victim to a sophisticated cyber attack that compromised a widely-used technology for preventing unauthorized access to key corporate/government data. EMC also said that the infiltrators hacked confidential data on RSA's SecurID products, but declined to comment on the type or the quantity of information stolen.
EMC’s 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.
The potential replacement of the SecurID tokens would be a mammoth task for EMC as it has already distributed about 40 million tokens to more than 30,000 organizations. Additionally, the potential cost of replacement of the tokens will likely adversely affect its results in the forthcoming quarters.
Taking advantage of the scenario, rival security providers are making their presence felt with new and attractive deals to lure customers away from EMC. Though EMC commands a 70% market share in this two-way security segment, we feel that other security companies are making quick inroads and EMC may lose some of its customers due to this security debacle.
We believe that companies will spend a large portion of their information technology (IT) budgets on cyber security going forward. This is expected to encourage all the major industry players to build new and innovative products that will increase competition for EMC over the long term.
Moreover, the security lapse can temporarily impact EMC’s results, due to the 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.
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