» Archive for the 'Mergers and Acquisitions' Category

IBM-Sun Deal Collapses (but should it have ever gotten this far?)

Sunday, April 5th, 2009 by Jonathan Spira

IBM withdrew its $7 billion offer for Sun Microsystems today, putting an end to several months of exclusive talks between the two companies.  Sun, a company that was a pioneer and innovator in high-end workstations and servers that, as the company’s tagline once put it, “put the dot in dot-com,” has struggled in recent years although it has retained a valuable customer base, a treasure trove of intellectual property, and a vaunted research and development staff.

IBM’s decision to withdraw its offer, which dropped from $9.55 to $9.40 per share on Saturday, may be a negotiating tactic and the two sides could theoretically resume discussions.  IBM has not spoken publicly about the possible acquisition but the move would have led to a significant consolidation in the highly-competitive server and data center market.  IBM would end up way ahead of close competitor Hewlett-Packard and would gain entry into other key markets where it has little presence, including the growing storage market, now dominated by EMC and Network Appliance, as an added bonus.

While IBM would clearly benefit from the acquisition (the company has been weathering the economic downturn just fine having seen increased profits despite a 6% decrease in revenue), Sun, on the other hand, actually needs a deal to survive in some fashion.  It’s lost almost $2 billion in the last two quarters and has laid off some 2,800 workers this year as part of a cost-cutting exercise.  Sun has been trying to convince itself, in many respects, that it was a software firm (it fancied itself going head-to-head with Microsoft after acquiring Open Office in 1999) but hardware has always been at the core of its business – and its earnings.  If IBM and Sun don’t return to the table, others may come calling.  Cisco recently entered the server market and would benefit from an instant installed base.  Sun’s customers, largely in government, financial services, and telecoms companies, are a loyal bunch and that loyalty is what has kept Sun intact to date.  Sun’s other businesses, including the Solaris operating system, Web infrastructure software, Java, MySQL, and NFS, would be icing on the cake although an acquirer might even sell or spin some of these off.

In addition, Sun would be a difficult entity for IBM to swallow considering the vast differences in corporate culture (laid-back Sun versus buttoned-down IBM) and IBM’s competitors wouldn’t hesitate to leverage any hiccups to their advantage.  Very few mergers work out as advertised; the promised efficiencies hardly ever seem to materialize (think DaimlerChrysler for a textbook example); and customers, sensing trouble ahead, look elsewhere.

The Wall Street Journal broke the news of the merger last month.  At the close of trading on Friday, Suns shares were at $8.49.

Jonathan B. Spira is the CEO and Chief Analyst at Basex.

Whither Nortel? To the competition…

Thursday, March 12th, 2009 by Jonathan Spira

Back in January, in writing about Nortel’s trip to bankruptcy court, I commented that one possible outcome might be that the company break itself up into pieces and that a likely acquirer for the enterprise unit might be Siemens Enterprise Communications.

According to an article in the Wall Street Journal, Nortel may be in talks right now to do just that – and possible acquirers of the enterprise unit include not only Siemens but Avaya.  Nortel has several strong businesses, including its wireless unit, which has continued to see strong sales from U.S. mobile operators, and the enterprise unit, which despite the company’s travails, has a strong customer base and equally strong sales.

The company’s fate may not be determined yet for months but the bankruptcy process in the U.S., as well as in Canada, requires the company to seek the most value for its creditors, so ultimately this scenario may play out.  The Journal article reported that one possible purchaser of the wireless unit might be Nokia Siemens, a joint venture of Nokia and Siemens.  If Nortel’s assets were swallowed whole by the two units Siemens AG spun off, the irony would not be subtle.

Jonathan B. Spira is CEO and Chief Analyst at Basex.

Whither Skype?

Thursday, January 29th, 2009 by Jonathan Spira

Recently, there has been some degree of speculation in the blogosphere as well as the mainstream press about the future of Skype, given eBay’s disappointing profits in 2008.  The Industry Standard went so far as to predict that Google will acquire Skype by August 31, 2009.

Whether or not there is any truth to the rumor – and this Skype for sale rumor has come and gone several times before -  it does present us with a good opportunity to focus on Skype as a company.

The 2005 acquisition of Skype, founded in 2003 by Niklas Zennström and Janus Friis, by eBay for $2.6 billion was somewhat of a mismatch, yet it allowed Skype to flourish and innovate largely unimpeded. Today, Skype needs to continue to build its business and grow on the successes of last year but eBay may not be in a position to support that model going forward.  Indeed, eBay needs to get its own house in order and improve its financial picture.

As I wrote in my 2005 analysis of eBay’s acquisition of Skype, the purchase of Skype served notice to the telecommunications industry that voice was merely another service to be delivered in a data setting, and that the market for voice calling, as we know it today, was simply fading away.

EBay’s acquisition of Skype made little sense at the time (the company attempted to justify the acquisition by promising to use the service to connect buyers and sellers and it did indeed add Skype functionality to auction pages).  Today it makes even less sense for eBay to continue to hold onto the company and management might as well cash in if they find a willing buyer.

Meanwhile, Skype has become a global telecommunications giant, with 405 million users worldwide (a 47% increase from 2007).  In 2008, Skype accounted for 8% of the world’s international calling minutes.  Surprisingly, or perhaps not, 30% of Skype usage is for business purposes.  25% of Skype-to-Skype calls use video.  And in Q4 2008, Skype experienced a 61% increase in SkypeOut calls (a total of 2.6 billion minutes).

A new parent might be able to find new synergy with the company, which could be used to expand Skype’s current largely consumer base into the small- and medium-sized business market and beyond.

The fact that Skype has continued to grow as an entity despite the mismatch with eBay is a testament to the potential this market has.

EBay purchased Skype in 2005 because it could.  Google, the News Corporation, Microsoft, and Yahoo were all said to have had an interest in acquiring the company but eBay was willing to put up the most cash and, because of the differences in business models, was also willing to leave the company alone to continue to innovate (unlike the course of action that Google or Microsoft may have followed).

In theory, potential acquirers could include Verizon or AT&T, a move that would give one of these traditional telephony companies a gigantic push into 21st century consumer communications.  Microsoft or IBM might also be interested, the latter less so given the consumer nature of the business.  Cisco is yet another contender: they certainly have the cash and Skype’s core functionality aligns nicely with what Cisco is doing in multiple areas but Cisco may simply not be that interested in what is perceived largely as a consumer offering.  We can surely rule out Yahoo, which continues to be on Microsoft’s acquisition radar, and while Google has progressed with its own technology a land grab still might work for them and they have the cash to make the purchase.

Regardless of what transpires, I suspect that we will be hearing a lot more from Skype in the not-to-distant future.

Jonathan B. Spira is CEO and Chief Analyst at Basex.

Google Goes Wiki with Jotspot

Friday, November 3rd, 2006 by Jonathan Spira

Google acquired JotSpot, a Wiki company.  The transaction itself was – appropriately enough – announced through separate Weblog postings on the Google and JotSpot Web sites.  Terms of the transaction were not disclosed.

A few months ago, JotSpot unveiled JotSpot 2.0, a wiki that went beyond the traditional boundaries of a Wiki by allowing the creation of collaborative calendars, spreadsheets, file repositories, documents, and photo galleries.  By adding a knowledge-worker friendly interface to their offering, they created a platform that might have the ability to support small organizations’ needs for knowledge sharing and collaboration.

As David Goldes wrote in this space back then, “wikis aren’t that common yet.”  They are, he noted, “easy to deploy and offer a good knowledge sharing and collaboration platform for organizations that have limited IT resources.”  Wikis may not be more common in the enterprise but they do have more mindshare.  More and more CIOs and line-of-business executives are asking us about wikis.

What scares managers and CIOs away from wikis, however, is that anyone can edit anything in a traditional wiki.  A wiki – “wiki wiki” is Hawaiian for “hurry quick” – is a Web page that allows users to add and edit content collaboratively; the term also refers to the software platform that supports wikis.  According to the Wikipedia, the first wiki, WikiWikiWeb, was named after the “Wiki Wiki” line of Chance RT-52 buses in Honolulu International Airport, Hawaii.

JotSpot’s permission model, added in 2.0, gives complete control over who can change and/or see information on a page-by-page basis.  It also added pre-defined page types that allow the creation of collaborative calendars, spreadsheets, file repositories, documents, and photo galleries.  The spreadsheet tool supports formulas, the ability to wrap text in a cell, copy and paste, and the ability to ‘shift-click’ to select a range of cells; the calendar page type allows users to create shared calendars; the file repository page type supports file sharing; the photo gallery page support allows the creation of pages with images and photographs (uploaded images are displayed as thumbnails and a slide show).  A link picker allows knowledge workers to create links to pages inside and outside of the wiki as well as to documents within the wiki.  All in all, JotSpot 2.0 started to sound more like an enterprise Collaborative Business Environment than a wiki.  And now, as part of Google, this is all free.

So what is Google doing with JotSpot?  Ultimately, wikis may prove very valuable to smaller organizations in need of good knowledge sharing and collaboration tools but lacking large IT departments.  They are not a cure-all for knowledge sharing and collaboration ills.  Only time will tell if a wiki suite is the right solution, but it sounds as if Google is making it easier for companies of all sizes to avail themselves of tools that previously only a large company might have in place.

Jonathan B. Spira is CEO and Chief Analyst at Basex.

Teaching the Elephant to Retire

Friday, September 23rd, 2005 by Jonathan Spira

Last week’s $2.6 billion purchase of Skype Technologies by eBay is noteworthy for one thing.  No, it isn’t the $2.6 billion price tag (plus an additional $1.5 billion if Skype hits certain performance targets in the next few years) for a company that only had $60 million in revenue and has yet to turn a profit.

It isn’t the fact that, besides eBay, Google, the News Corporation, Microsoft, and Yahoo were also said to have been interested in Skype at one time or another.

It isn’t even the fact that eBay might have overpaid, or that eBay may not be the best custodian for Skype.  (EBay says it will use Skype technology to add communication channels for buyers and sellers and it may add click-to-call adverts later on. If this is the best they can do, it is truly a waste of talent and technology.)

It’s simply the fact that the purchase of Skype serves notice to the telecommunications industry that voice is merely another service delivered in a data setting, and that the market for voice calling, as we know it today, is simply fading away, albeit a fast fade to black.

In ten or more years, we may look back and think of the concept of a telephone number somehow anchored to a pair of wires terminating in a telephone apparatus as rather quaint.  Even with today’s fairly early Voice-over-IP technology, such as provided by Skype, I can accept phone calls from my “New York” number whereever I might be, from Los Angeles to London to Munich.

Today, there are many different ways to place the same phone call: I could use my home telephone (landline), I could use my mobile, I could use the softphone from my company extension, or I could use a VoIP provider such as Skype or Gizmo Project.  The enterprise PBX market has already moved to open standards and Internet Protocol telephony; that leaves traditional last mile providers such as Verizon and BellSouth and mobile operators such as T-Mobile and Cingular holding the bag.  These companies have huge investments in infrastructure largely designed for voice – and for mobile operators, profits from voice services have helped make up for the failure of 3G networks to catch on as planned.

Ironically, federal regulators are close to approving Verizon Communications’ $8.5 billion purchase of MCI and SBC Communications’ $16 billion takeover of AT&T, while the $2.6 billion acquisition of Skype doesn’t warrant a second glance.  It’s likely that the Justice Department will require the merging companies to sell some assets, moves which they believe will preserve some level of competition for enterprise customers.  Skype, of course, has very few assets in the traditional sense and uses lines owned by others (the users’ Internet connections), having only to pay for the last mile when a user calls a non-Skype user.  Moreover, Skype may be the first true international telecomms company; most companies in the industry are successors of national monopolies.

It is of course no longer a question of whether VoIP will supplant the incumbent telecomms business, but rather a question of how quickly this will take place.  Millions of people place calls for free every day and the number is increasing in geometric progression.

Will the notion of a pay telephone seem patently absurd in five years’ time?  We live in a time where many are probably unaware of the etymology of the word “dial” as in to dial a phone number.  Perhaps this is why Skype has attracted the attention (and money) that it did.  After all, who’s going to teach the elephant to retire?

Jonathan B. Spira is CEO and Chief Analyst at Basex.

The State of the Technology Industries January 1997

Wednesday, January 15th, 1997 by Jonathan Spira

As industry analysts, we follow the comings and goings, trials and tribulations of dozens of companies who impact the industries we closely follow.  Their fortunes rise and fall based on how quickly they well they are able to maintain mindshare as well as marketshare.  Unlike financial analysts, who apply their own proprietary models to examine (exhaustively, I might add) balance sheets, filings, ROI – and sometimes even have more accurate information than the data provided by the companies themselves, we  look at companies from a far more subjective
perspective:  innovation counts, as does mindshare, as does the ability to turn around a company’s focus on a dime.

Funny things have happened from our musings.  Last year, MSNBC liked a sentence that our own David Goldes penned so much that they asked for (and received) permission to quote it.  Next thing we knew, that line (along with Goldes’ e-mail address) was appearing in large ads in the Wall Street Journal and in bus- and train-length ads on the sides of moving vehicles.

There are far more companies in the technology sector than we could hope to follow and get to know; therefore, inclusion in our list is perhaps indicative of our own leanings as much as it was the ability of  their marketing and analyst relations people to keep their company’s name in front of us.

This review, by the way, is presented perhaps more as a summary of the past year rather than a harbinger of the future; past performance is no guarantee as they say.  And now, the envelope please:

3Com.  Even its basic producs (network cards) easily outdistance the competition.  Needs to align its acquisitions and make everything work together.  It’s harder than it sounds.  How about a stadium on the east coast?

AOL.  Compuserve.  Prodigy.  Dramatic changes in the market (esp. pricing) can be devastating.  So are busy signals for end users.  AOL’s restatement of its financials proved it lost 17 cents on every dollar it earned.  CompuServe loses 10,000 members a day (and is not adding nearly so many new ones).  GEnie has 20,000 members left.  And Apple logged eWorld off.  These companies may become footnotes before they know it, if they don’t leverage their base as an ISP successfully.

Apple.  NextStep and Jobs are an unbeatable combination, but the OS doesn’t work on Apple’s Mac platform.  Will loyalists wait until ’98?

AT&T.  They started the year by announcing the spin-off of NCR and Lucent.  Now, with John Walter, they hope to concentrate on their core markets.  I hope they find them.  A further downsized AT&T, concentrating on the modern day equivalent of “long lines,” is a powerful contender; adding new media (read: Net access) into the mix while leveraging its customer base is a potentially lethal combination.

Cisco.  Its products run the Net.  ‘Nuf said.

Computer Associates International.  As it continues to integrate its acquisitions (most recently Cheyenne), it has become almost as beloved as Microsoft in its competitors’ hearts.

Corel.  Only Michael Cowpland could save WordPerfect.  Applying the Corel marketing machine to the product is its only hope (along with restoring the expected high level of tech support).  Corel also understands the WordPerfect legacy user.  High expectations here.

IBM.  Gerstner has reenergized and refocused the company (and Wall Street agrees).  Its mainframe business has never been hotter.  Whither the mini-computers?  Whither OS/2?

Intel.  Has learned the art of eating its own children and then growing new (and faster) ones.  And Intel continues to push the envelope of the industry with a basic ingredient: continuing, genuine innovation.

Lotus.  Domino could dominate, but the user community needs to understand its significance first.  By unbundling the unique aspects of Notes (replication, for example), it can create a new standard, but risks weakening the growth of the overall Notes market.  For those who doubted, the wisdom of IBM’s investment is definitely beginning to pay off.

Lucent.  No longer tied to AT&T, they have created tremendous mindshare and an ability to sell to what formerly was Lucent’s AT&T-parent competition.

Microsoft.  NT Advanced Server flies.  Windows 95 has the workstation mindshare.  If only you could upgrade Win95 to Windows NT workstation.

MSNBC.  Having trouble bridging news and on-line functionality; possibly due to huge rift between two corporate cultures.  It’s an idea whose time has come – all they have to do is innovate rather than repurpose.

Netscape.  Refocusing, but de-emphasizing the Navigator name which owns the browser mindshare market.  Now aiming at Lotus but has yet to fire more than a shot across its bow. Missing ingredient: tools and a datastore

Novell.  Owned mindshare for networking, but Microsoft caught on.  Needs to leverage its roots.  Divesting non-core products and non-core execs has been a good move.  IntraNetWare makes the Net a plugin to Novell shops.  The core product needs to be marketed to non-IS managers de-emphasizing speeds and feeds.

NCR.  Strong brand name returns; hopefully not too much damage was inflicted.  Needs to return to roots in banking and retail systems.

Oracle.  Now that its own internal financial reporting has been straightened out, its ownership of the database market is unquestioned.  Other companies have learned that moving away from core competencies can be devastating?  Does Oracle envision a world of Oracle hardware (NCs) running Oracle software?

SGI.  Why Cray?

Sun Microsystems.  JAVA and JAVAStation.  Need we say more?  Don’t lose the momentum here.

Symantec.  Web, JAVA, Act, and Peter Norton.  Neat package.  Neat integration.

Tandy.  Needs to go back to its Radio Shack roots.  In its day, the TRS-80 was considered a market leader.  Now they are narrowing their Universes and abandoning their (Computer) Cities.

Wang.  No hardware, no debt.  Its workflow and imaging innovations are set to propel it forward.

Jonathan B. Spira is the CEO and Chief Analyst at Basex.  This article originally appeared in the Basex Online Journal of Industry and Commerce (BOJIC).