EMC Israeli Spinoff Appears in the Works

In sign of the tines, website registered for Tel-Aviv based independent software group

By Susie Davidson

Advocate Correspondent

Last week, data storage industry spokesmen revealed Hopkinton-based EMC’s plans to spin an Israeli-based software group out into a separate entity.

The data storage leader, which donated its Symmetrix hardware equipment for usage in Steven Spielberg’s Survivors of the Shoah Visual History Foundation, has recently been moving in new directions within today’s challenging technology climate. Although competitors such as IBM have already created separate software divisions, EMC had not yet gone that route. However, hardware sales have decreased to the point where it has focused more on software development, and this initial Israeli venture could be a sign of future breakups within the company.

Former EMC executive Doron Kempel, a former officer in the Israel Defense Forces, who previously held management positions with Imedia, Robertson, Stephens and The Israel Corporation LTD, would be heading Diligent, the projected name of the Israeli group. Symmetrix creator and longstanding EMC engineer Moshe Yanai, who was a high-ranking officer in Israel’s defense forces’ technical intelligence unit, would also be in the picture. Though it is not yet fully operational, www.diligenttechnologies.com has been registered to an Israeli-based EMC server, with a Tel Aviv-based EMC employee cited as technical contact.

Israelis have been highly influential within EMC’s historical ranks; the company's founding team of engineers, all trained in Israeli army engineering units, include Kempel, Yanai, and Erez Ofer, currently EMC Executive Vice President for Open Software. Ofer joined EMC in 1993 and helped transform Symmetrix into the most open storage system worldwide. With a master’s degree from the Technion-Israel Institute of Technology and an MBA from Northeastern University, he worked for Israel’s Scitex Corporation (Silver Arrow) and with the Israeli Air Force.

EMC Founder Richard Egan, currently the U.S. Ambassador to Ireland, hired Israeli engineer Yanai in 1987 to develop Symmetrix. Yanai became EMC’s highest-paid executive due to a subsequent favorable arrangement and the success of the system. “Yanai remains a legend at EMC, where the joke is that EMC stands for ‘Eventually Moshe's Company,’” says Forbes analyst Daniel Lyons, although EMC executive chairman Michael Ruettgers has said that Yanai never placed personal interests above those of the company.

Yanai is also known to have opposed 1999’s $1 billion EMC acquisition of Data General and its Clariion storage system, a cheaper alternative to Symmetrix. Clariion was eventually distributed mainly through Dell Computer’s sales forces in a partnership agreement.

The focus of Diligent, which is expected to base engineering and coding development sites in Israel and marketing and sales in the U.S., is seen to be the creation of software to enable expedient data recovery. Another aim would be for computer servers to be able to access capacity for storage across the spectrum of a network, a process called ''virtualization.''

The proposed spinoff seems like a prudent move. “EMC has been struggling with falling profits and layoffs spurred by the technology spending slowdown,” says industry insider Stephen Shankland. “It also has seen increased competition from rivals such as IBM, Compaq Computer, Hitachi Data Systems, Hewlett-Packard and Sun Microsystems. Though EMC largely has sold hardware used to store corporate data, a key part of its future lies in software.”

"EMC has a significant storage software and networking lead at a time when the market has begun to shift in this direction," says Merrill Lynch analyst Thomas Kraemer.