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What's behind the Veritas makeover?

CEO Gary Bloom is gambling on a major shift to turn the backup and recovery software maker into a supplier of technology for corporate data centers.

CEO Gary Bloom liked the old Veritas just fine. However, he says, it's time for a fundamental makeover.

Following a string of acquisitions and new products, Bloom is in the midst of retooling the backup and recovery software maker into a supplier of technology for corporate data centers.

In part, Bloom's expansion plans are made necessary by the fact that the company's core business is leveling off. What's more, Veritas, which grew to prominence by helping companies manage their storage systems, faces increasing competition from hardware makers like EMC that are expanding into the software market.

So, where does that leave Veritas?

In a good spot, according to Bloom, who has major ambitions to cash in on the growing popularity of so-called utility computing. He sat down with CNET News.com, prior to last week's Veritas Vision conference in Las Vegas, to discuss his plans.

Q: Hewlett-Packard, IBM and EMC all tie their growth in storage to their ability to execute in software. What does the growing importance of software to storage hardware makers suggest?
A: Clearly, hardware is commoditizing. We've watched the price per megabyte go from 15 cents to 20 cents per megabyte two and a half years ago to what the industry analysts now say is 4 cents a megabyte. The question is: If the profitability curve falls out of the bottom of your hardware business, what's the next logical step? The answer: software.

EMC has gone down the path of saying that it would compete with Veritas and try to become a storage software company. I have my share of skepticism about its ability to do that. We don't ignore EMC. However, we have seen other vendors turn to much more cooperative partnerships (like ones with us), even though they want to provide solutions in some portions of the storage software space. For instance, we've watched our relationship with HP and IBM actually grow. It's kind of a mixed bag.

Will emerging standards for storage software mean that there really is software that can interoperate at a deep level with all of the hardware out there?
I see most of the standards at a very basic level allowing different hardware makers to interoperate. It's not going to go terribly deep. Standards are good. Most of the interoperability today is not being provided by the standards. It's being provided by these kind of one-off, for lack of a better term, almost hostage exchange-type API (application program interface) exchanges: If you give me your API, I'll give you mine.

Do you expect these API swaps to go away?
No. I think you are going to see them happen more and more and more. It's a little bit of a catch-up mechanism to try to get interoperability, but it still leaves you in a pretty limited environment. We have a very broad architecture that allows interoperability of virtually any kind of device...That's a pretty slow path to catch up to what we've been doing.

Historically, most of your business has been in backup and recovery areas. Veritas has been trying to grow into broader parts of the storage business...
Not really. Historically, backup was a big piece. What we've tried to do is move away from the core of providing the components that deliver storage and information, and to move into the automation of storage.

A lot of people say Veritas really needs to move into new areas, and that the existing parts of the business won't grow fast enough to meet what everyone expects out of the company.
It's funny how everyone keeps saying there is no growth left in our core business. Yet look at Veritas as a company, and we've grown 25 percent over the last two years.

It's funny how everyone keeps saying there is no growth left in our core business.
We've gone from the end of 2000 at under $1.2 billion in revenue to finishing 2002 at $1.5 billion. Growth is a relative thing. We're not growing at the 50 to 60 percent clip we might have been at the heyday of the dot-com bubble, but we are still growing, and we are still successfully building our business out.

You've talked about working with Cisco Systems and about bringing more of the management of storage into the networking arena. What's happening there?
We continue to work with Cisco, which has yet to bring to market a product that we are part of. They did introduce some storage capability in their switch technology, but the one that starts doing virtualization in the switch has not yet come to market. Our foray into that market with Cisco will be highly dependent on how well Cisco does. It's much more in their hands than it is in mine.

We're also embedding our technology in lots of different network-based switches. As storage and networks converge, we want to be there. Ultimately, I believe that customers will want to provision storage from the server and that they are going to want to provision some of their storage from the network. It's going to be relatively application dependent and relatively company dependent.

One of your competitors, Legato Systems, is said to be on the block now. Is that a company whose technology you'd rather see in your hands or in the hands of your competitors?
The technology that Legato has, along with its market share position, is largely irrelevant. On a relevance basis, if you look at its market share, it's a small player in the market today...The fact that it's rumored to be for sale shouldn't be a surprise...Veritas is pretty big, and we're not for sale.

IBM is not interested in selling its business--at least I have not heard that they are. And Computer Associates is not a company that somebody would buy just for backup. It has too broad of a business. (Legato) is the first one that is small and available in a market that already has three heavyweights. If it does get acquired, I don't think it will change its relevance in the market.

One issue that has come up with all technology companies is the question of expensing options. If Veritas had had to do that last year, it would have resulted in a loss. There's a proposal from shareholders who want you to expense options.
We have a recommendation by our board to vote against the shareholder recommendation. There are really two reasons that recommendation is there. One is that accounting rules don't stipulate a consistent way for everyone to report the expensing of stock options.

But on the particular proposal put in front of our shareholders, the real difficulty is that (shareholders) are asking us to expense options only for our executives. From what we can tell, there is no emerging rule or scenario under which anybody is asking a company to simply expense options for some subset of the options that are given. All of the proposed (accounting) rules are all or nothing.

I'm relatively indifferent to it. If the accounting rules say we have to expense options, and they give us a consistent way to expense options such that my competitors expense them that way, and the industry expenses them that way, and all forms of business expense them that way--then we're going to expense them.

I do have the concerns of a CEO, wondering whether the valuation to options would be accurate. That's the big question. I also fear that that information will hopelessly confuse shareholders. It would be inaccurate, in my view, to see Veritas last year as a company that lost money. In fact, if you look at Veritas last year, we generated roughly $100-plus million dollars in cash every quarter. I just think that the rules are way too confusing.

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