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Veritas soars on IBM pact
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May 17, 2000: 4:25 p.m. ET
Server deal solidifies software outfit's market leadership position, analysts say
By Staff Writer Richard Richtmyer
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NEW YORK (CNNfn) - Investors cheered Veritas Software's strategic business agreement with IBM, under which the storage-management software supplier will develop and market its products for IBM's enterprise-class servers.
Veritas (VRTS: Research, Estimates) shares soared 7-5/16 to 111-5/16 at the end of the trading day Wednesday.
After the markets closed on Tuesday, Veritas, which makes data-storage software used in corporate networks, said it has signed an agreement with IBM under which it will modify its storage-management software to work with Big Blue's AIX operating system, which is its version of UNIX.
Analysts said the deal solidifies Veritas' dominant position in the market for UNIX storage management and sets the stage for strong growth.
"This deal essentially completes Veritas' vision of being the de facto standard for storage, having established relationships with the major operating systems platform leaders including Microsoft, Sun, Hewlett-Packard and now IBM," Joe Farley, an analysts at Donaldson Lufkin & Jenrette, said in a research note to clients.
 Farley, who characterized Veritas as "one of the premier and best-positioned franchises in all of technology," reiterated his "buy" rating on the company, and said the opportunities before it will make his long-term price target of 200 "achievable in relatively short order."
SG Cowen analyst Drew Brosseau reiterated his "strong buy" recommendation on Veritas, saying that the deal with IBM opens up a sizable untapped part of the UNIX market for the company.
In addition to the deal with IBM, Veritas announced three new products for Hewlett-Packard's (HWP: Research, Estimates) servers this week. Both HP and IBM have become much more aggressive in the UNIX server market, which is currently dominated by Sun (SUNW: Research, Estimates).
When they reported earnings on Tuesday, executives at HP credited an increase in sales of UNIX servers in large part for an upside surprise. Last week, IBM rolled out a new line of products, which it is aiming to knock Sun from its leading position in the market mid-price range UNIX server market.
"Veritas claims that it gets 45-to-50 percent of its current revenues from products that sell into the Sun market, suggesting significant upside to revenues down the road as IBM and HP begin to pull their weight," Brosseau said.
In the near term, Brosseau said Veritas may benefit from a "halo effect." The deal is likely to spur sales of IBM's existing AIX products. And, by finally landing a deal with IBM, Veritas should be able to boost its market share gains among other UNIX server vendors and reduce the incentive for any other major player to go another way, he said.
For its part, IBM has found a way to enter the mainstream enterprise software market, according to DLJ's Farley.
"Over the years, IBM's storage solutions have increasingly been looked upon as IBM-only solutions," he said. "This deal would allow IBM to offer its customers a choice in storage solutions without disenfranchising its own storage business and storage customers. Down the road, we could expect to see an uptick in IBM's server shipments as a result of this agreement."
IBM (IBM: Research, Estimates) shares were off 1-7/16, or about 1.3 percent, at 107-9/16. 
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