Network storage giant EMC (NYSE:EMC) has acquired the rights to BMC Software's (NYSE:BMC) Patrol Storage Manager storage software product. In addition, BMC will now offer EMC's storage management products exclusively in solutions sold to business customers. Financial terms were not disclosed.

With a market cap of $24 billion, EMC is already No. 1 in data storage hardware. Nonetheless, the company has faced stiff competition from Network Appliance (NASDAQ:NTAP) and a general collapse in business capital spending. In response, and attracted by software's higher margins, EMC has quietly acquired (its PR department notwithstanding) nine storage software companies over the past three years.

Meanwhile, BMC, though an established business software maker boasting $1.3 billion in trailing 12-month sales and 40% free cash flow margins last quarter, struggled in the storage software market, and exited the space in March. With corporate CTOs and CIOs favoring "safe" big-name software vendors, even BMC can't compete with more established vendors EMC, IBM (NYSE:IBM), or even Veritas (NASDAQ:VRTS). Those customers who took the plunge with BMC will be relieved that EMC will continue to service them.

Investors scrounging the computer technology trash heap for companies with attractive valuations and prospects might be tempted by EMC. However, at 33 times -- gulp -- trailing free cash flow and with a negative return on invested capital the last two years, EMC is priced for the dizzy growth of years past.

Even when business capital spending resumes -- and it will -- it will have to do so at astonishing rates to justify the risk inherent in EMC's current valuation. Higher margins from its software business, if well managed, could juice the benefits of any revenue increase, but at current prices the stock must be viewed as a speculation. (Do you agree? Our Community considers the BMC deal and all things EMC on our nifty discussion board.)

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