While all the parties are tight-lipped on the situation, a for sale sign has been hanging over Legato for some time, and IBM, Sun Microsystems, Hewlett-Packard and Computer Associates have all been mentioned as potential bidders.

Though a $1bn price tag was once expected for the company, the whisper around Wall Street is that EMC is prepared to pay more than other parties, though considerably less than was originally expected. Legato’s recent figures make poor reading, and in the year to December 31, the net loss was $228.8m, up from a loss of $81.5m on revenue 7.9% higher at $261.9m.

With its reliance on hardware, EMC has been badly hit by the downturn in IT spending, and revenue has been on the slide since 2000. In its last financial year to December 31, it reported a net loss of $118.7m on revenue down 23% at $5.44bn. The company has for some while said that it wants to increase the proportion of its revenue coming from software. In 2002, software accounted for around 23% of EMC’s revenue. For 2004, the company is targetting a 30% software share of its revenue.

However, despite $2.5bn in cash and equivalents, EMC has been strangely reluctant to enter the takeover market, preferring modest acquisitions such as its $20m purchase in September 2002 of privately held Prisa Networks, which develops Windows-based SAN-management software.

With external disk storage revenues falling across the entire market and customers switching their spending to storage management software, the acquisition of Legato is the one way that EMC can grow in the short term.

Legato’s flagship product is its NetWorker backup application, but the company also sells HSM and replication products. Dennis Martin, analyst at the Evaluator group, said that Legato’s experience handling file-level data would be useful to EMC, whose current SRM product does not deal with data at that level.

If EMC wants to compete in the backup space, Legato is out there at a nice price, Dennis said. Backup may be dull, but because the amount of data being stored is growing, the amount of data being backed up is growing too, he added.

Source: Computerwire