EMC (EMC) has introduced a web-threat detection solution through its company RSA. The product will enable an enterprise to provide a web security for its online and its mobile applications in the real time. In this article, I want to explain how the growth in the worldwide web security market will enable EMC to increase its information and security division revenues by 5% with the new product. This factor will help EMC to improve its price multiples.
How will EMC's fundamentals show an improvement? Many organizations want to prevent a revenue decrease caused by a fraud or the other disruptive uses of their websites. Consequently, they have increased their spending on the web-threat detection solution. According to a research from International Data Corporation, this emerging security market is forecast to grow from $198 million in 2009 to $905 million in 2014. EMC will benefit from this growth with the new product since it is already a global leader in the sector. This will increase the company's revenues for the information and security division.
EMC's sales growth is inevitable. Its subsidiary RSA has boosted EMC's revenues in the information and security division with similar products. Consequently, the division's revenues increased by a 12% margin on a year-on-year basis in the first quarter.
In the fourth quarter, the RSA information and security business grew by a 16% margin compared to the year prior. In the third quarter, the division's revenues increased by a 6% margin on a year-on-year basis.
EMC And Web Detection
EMC's company RSA has offered several successful web-threat detection solutions in the past. The RSA Silver Tail Forensics enables visibility into the web and the mobile application traffic to prevent a disruptive activity. The RSA Silver Tail Profile Analyzer examines the profiles of the website users to determine if their activity is a legitimate or a suspicious one.
The new web-threat detection solution will enable a company to identify a web threat in a more effective way. The product will add a one-click capability to help an enterprise gain an insight into the activities on their websites. "The RSA Silver Tail 4.0 technology combines the intuitive visualization of Big Data and the click-by-click real-time insight of streaming analytics, raising the bar for web-threat detection," said Tim Eades, Vice President, RSA Silver Tail, RSA, The Security Division of EMC.
EMC is introducing the new solution to increase its overall revenues. Fortunately, the web-threat detection sector is a growth area. EMC's revenue increase will enable it to gain a head start over its rivals.
When we look at the revenues of the information and security division in the last few quarters, we notice that they show a year-on-year growth. It is clear EMC has been improved by the division. It can be said therefore that EMC is operating it in an effective manner.
With a price to earnings ratio of 20.33, EMC has been trading on a competitive level, especially given that it has a gross margin of 61.21%. The new product will increase the revenues of the information and security division and improve EMC's earnings per share.
How is EMC performing in a relation with its rivals? With a gross margin of 61.21%, compared with 45.62% for IBM (NYSE:IBM) and 23.66% for Hewlett Packard (NYSE:HPQ), and a price to sales ratio of 2.37, compared with 2.18 for IBM and 0.42 for Hewlett Packard, EMC does appear to be operating on a competitive level. Hewlett Packard and IBM have the competing web-threat detection products. However, EMC's new solution will make the company to be even more profitable.
There are some risks in buying an EMC stock. The sluggish global economy affects the capital spending directed at the information technology sector. Additionally, EMC has an integration problem caused by its acquisitions. But based on the quality of the new product and the growth prospects for it, we can say EMC will increase the revenues of its information and security division. Looking at the company's price multiples, we still maintain EMC is a good buy for the long term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.