While the timing of the event comes as a surprise, the fact that IBM has decided to unload its technically excellent but unprofitable semiconductor manufacturing operation does not, nor does its choice of Globalfoundries, with whom it has had a longstanding relationship.
With last week's $175M acquisition of storage startup Inktank, the initial developer of the Open Source Ceph storage platform, Red Hat has added another piece to its growing storage portfolio. With large storage players fleshing out their software storage offerings including EMC (ScaleIO, Project Nile), NetApp, HP, and IBM, it's clear that the transition from hardware-centric storage appliances to software storage is underway — and it won't be long before we are at a point where your next array should be an app running on commodity hardware.
Though large storage players have successfully fended off software challengers such as Symantec before, it is telling that nearly all of the major players are developing and marketing their own software storage products, including EMC’s ScaleIO. The drive toward software storage is clearly gaining momentum, and this time around the storage leaders are active participants in addition to startups such as Nexenta Systems and the Open Source projects.
While Red Hat is not a major storage player today, there are a few reasons why this company could become disruptive as the market transitions to software storage:
No legacy business to lose. This is probably the most powerful attribute that makes Red Hat dangerous relative to existing storage players. While Red Hat’s market share (in terms of storage revenue and paying customers) is nowhere near the likes of leaders such as NetApp and EMC, its lack of legacy business will allow Red Hat to attack the NAS, object, and block storage market without the sacrifice of losing high-margin storage appliance sales.
Kofax continues its acquisition rampage with a cash purchase of Kapow. I came across Kofax a few years ago while doing the research for "Take A Process View Of Content Integration." Apparently Kofax has taken the "process view." The idea behind that piece was that enterprises had so many diverse content stores that they needed to view conversion and migration of unstructured content as an internal competency.
But while content integration can reduce infrastructure costs and license fees, the real value is from improving business processes by linking content to business process management (BPM) and dynamic case management systems to reduce cycle time and improve compliance, customer support, and decision-making. These projects can be complex, difficult, and challenging, but Kofax correctly sees this as a large opportunity. I do as well.
Another Kapow capability is to scrape websites and create consolidated views. For example,customer service reps often switch between apps in a clumsy and inefficient manner while the customer is on hold. In some cases, ECI software should grab the needed content behind the scenes and present it in a unified way. Kapow Technologies' content integration solution works like a robot to extract, transform, and load content from Web-based apps to consolidated views. I interviewed one large telecommunications company that used Kapow's robot for customer service business processes to eliminate task switching and repetitive tasks. According to the company:
The industry is abuzz with speculation that IBM will sell its x86 server business to Lenovo. As usual, neither party is talking publicly, but at this point I’d give it a better than even chance, since usually these kind of rumors tend to be based on leaks of real discussions as opposed to being completely delusional fantasies. Usually.
So the obvious question then becomes “Huh?”, or, slightly more eloquently stated, “Why would they do something like that?”. Aside from the possibility that this might all be fantasy, two explanations come to mind:
1. IBM is crazy.
2. IBM is not crazy.
Of the two explanations, I’ll have to lean toward the latter, although we might be dealing with a bit of the “Hey, I’m the new CEO and I’m going to do something really dramatic today” syndrome. IBM sold its PC business to Lenovo to the tune of popular disbelief and dire predictions, and it's doing very well today because it transferred its investments and focus to higher margin business, like servers and services. Lenovo makes low-end servers today that it bootstrapped with IBM licensed technology, and IBM is finding it very hard to compete with Lenovo and other low-cost providers. Maybe the margins on its commodity server business have sunk below some critical internal benchmark for return on investment, and it believes that it can get a better return on its money elsewhere.
Some Reflections On The Deal For Competitors, Partners, and Customers
On December 3, SAP announced the acquisition of SuccessFactors, a leading vendor for human capital management (HCM) cloud solutions. SAP will pay $3.5 billion (a 52% premium over the Dec 2 closing price) out of its full battle chest and take a $1 billion loan. SuccessFactors brings about 1,500 employees, more than 3,500 customers, and about 15 million users to the table. In 2010, the company reported revenues of $206 million and a net loss of $12.5 million. A price of $3.5 billion is certainly a big premium, but the acquisition catapults SAP into the ranks of leading software-as-a-service (SaaS) solution providers — a business that will grow from $21.3 billion in 2011 to $78.4 billion by 2015 (for more information, check out our report “Sizing The Cloud”). The deal will certainly help SAP to achieve its 2015 target of $20 billion revenue and 1 billion users as it mainly targets the 500,000 employees that SAP’s already existing customers have. The deal is expected to close in Q1 next year. However, because most of the stocks are widely spread, stakeholders might hold back for now, waiting for possible counter bids from competition.
As a former investment analyst, I remember the feeling when stock market screens turn deep red. Such days turn one’s stomach upside down on a dealing floor. But even from the outside, such days are unnerving. The big question in the telecoms markets making the rounds at present is how the current market turmoil will affect the telcos. The 2008 financial crisis might provide some clues to what we could expect in 2011 and 2012, albeit in a less-pronounced fashion:
Consumer spending on communications will remain pretty stable. During the last financial crisis, spending on communications remained largely untouched by the consumer. We do expect a slight migration towards flat rates for customers with the desire for greater cost certainties and towards prepaid by customers with the desire to lower their communication expenditure. One obvious danger in times of turmoil are price wars between service providers. They can offer only short-term growth relief, but at a high cost. Resulting poor margins will be felt for a long time.
Businesses will put nonessential IT projects on hold or water them down. We have not yet seen evidence that COOs and IT departments have tapped the brakes on their tech buying, but they certainly have become more cautious. If the economies of the US or Europe go into recession — a possibility, but not our baseline forecast — that will hit IT budgets, as happened in 2008 and 2009. I am hearing from telecoms providers that their enterprise sales pipelines are already under pressure as customers slow their IT investments and look for ways to reduce their telecom services spending. Projects that support end-users with their sales efforts, e.g., sales force automation projects, are likely to be less affected than others.