IBM's spending spree adds up to a portfolio of goodies

With an aggressive strategy to expand its software portfolio and plenty of cash to spare, IBM bought its way into several vertical markets in 2004. The deals were advantageous for all parties involved and, for IBM, it certainly beat starting from scratch.

To survive this season of holiday-entertaining madness, there's a motto I live by. "Fake it, don't bake it."

I don't believe you should ever waste time making something from scratch when it's sold in aisle five at Stop & Shop. Add a few personal touches, and voila, people think you cared enough to spend hours on making the perfect dessert.

This is IBM's strategy, too. (Seriously, I know you're rolling your eyes at this analogist stretch, but it's true.) Why spend $20 million in R&D when you can buy the technology for $10 million, make a few adjustments, then call it your own?

They're sitting on a lot of cash and they're using it.
Charles King
principal analystPund-IT Research

This way of thinking resulted in several high-profile acquisitions for IBM in 2004 -- all major moves that have either put Big Blue into markets where it lacked presence or gave the company a technology that provided the missing link to an otherwise perfect product line.

The writing was on the wall when IBM announced last December it would restructure its $13.1 billion software business and divide its software group into 12 industry-specific segments, including retail, manufacturing, health care and financial services, and pump hundreds of millions of dollars into the initiative. The company was planning an all-out effort to expand its software portfolio. Since January, IBM has made more than a half-dozen acquisitions -- some major, some not -- but all of them have given the company a foothold into new markets.

"They're sitting on a lot of cash and they're using it," said Charles King, a principal analyst at Hayward, Calif.-based Pund-IT Research. IBM's goal is two-fold, he said. In buying major players in key markets, as well as key players in small markets, IBM is buying technology, but it's also taking competitors off the board.

"In some cases, IBM is buying companies for pennies on the dollar of what it would have cost to develop its own technology," he said. But probably more important, he said, is that because software is becoming the differentiator, IBM is buying time to market.

"You might be able to build it, but do you have the 12 to 24 months that it would take to bring to market?"

Here is a rundown of IBM's major acquisitions in 2004:

Trigo Technologies

In March, IBM acquired privately held Trigo Technologies Inc. , a supplier of data synchronization software that is used to streamline supply-chain operations. This purchase fills a gap in Big Blue's ever-expanding middleware portfolio. More importantly, this buy went a long way into proving IBM's commitment to vertical growth markets UCCnet and RFID. It also means better solutions for thousands of iSeries shops wading through UCCnet FUD (fear, uncertainty and doubt).

Candle Corp.

Considered one of 2004's most significant moves, IBM in April purchased Candle Corp., a privately held company that specializes in data center management software.

This move rounded out IBM's products portfolio, which helps users manage on-demand operating environments and complements IBM's middleware solutions. Highly regarded among the mainframe community, the El Segundo, Calif.-based company brought more than 3,000 customers worldwide to the table, most of them running on the mainframe platform. An IBM partner since 1976, Candle has infrastructure management solutions that cover a wide range of hardware and software, including IBM's DB2, Lotus, Tivoli and WebSphere software, as well as the zSeries, Linux, Unix and Windows platforms. Candle is now part of IBM's Tivoli brand of products.

Mapics

IBM and supply chain vendor Mapics expanded their relationship in July to target small and midsized businesses (SMBs) with products designed specifically to support the iSeries. Although a long-time IBM partner, the Georgia-based Mapics is new to the iSeries market. While the alliance provides a new set of enterprise resource planning, customer relationship management and supply chain capabilities to iSeries customers, it's another notch in IBM's belt, as it continues to push forward with its SMB offerings to undercut Microsoft's market share.

Alphablox

IBM also acquired in July, Alphablox, whose software enables users to embed analytics -- such as customer buying trends -- into existing business processes, and makes information available for easy, logical viewing. By acquiring Alphablox technology, IBM will be able to fill a gap in its data management offerings -- a front-end dashboard. The move further strengthens IBM's position in the business intelligence market, a key strategic priority for its data management efforts and its on-demand computing initiatives.

But not all acquisitions have smooth transitions or happy endings. In April, IBM bought the London-based Business Continuity Services unit of Schlumberger Ltd., and some of its 260 employees were rolled into IBM's global services division. The deal gives IBM 40 new recovery sites and an extra 10,000 seats in Europe. But IBM hit a snag part way into the deal when it encountered opposition from the Competition Authority, which blocked the purchase of the Irish arm of Schlumberger. IBM could have battled it out in court but figured it wasn't worth it.

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