IBMs Telelogic Buy: A Return to Rationals Roots

ORLANDO, Fla.—IBM Rationals plan to acquire Telelogic for $745 million is a move by the IBM division to go back to its roots.

In a roundtable with press June 11 at the Rational Software Development Conference here, Danny Sabbah, general manager of IBMs Rational business unit, acknowledged that Rationals acquisition of Telelogic to help the systems giant better enable developers to build embedded systems is something of a homage to Rationals beginnings, when the company focused heavily on providing tools for the scientific, defense and engineering markets. But that is just part of the story.

"In some ways, its going back to Rationals roots, but there are lots of new opportunities, particularly in consumer electronics and the automotive market," Sabbah said. "Rational was never very big in the automotive market."

However, Rational, which IBM bought in 2003, was big in providing software for developers of embedded systems for missile guidance and command-and-control systems for defense. As part of its heritage, Rational sold hardware for developing applications in Ada—an object-oriented language designed for and mandated by the government. Telelogic has also sold tools that supported Ada development.

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Rational got away from the embedded space, Sabbah said, noting that the division under IBM, of Armonk, N.Y., was looking to expand markets, and perhaps "left the flank open a little bit."

The acquisition of Telelogic will help shore that up.

"Part of the reason were acquiring Telelogic is because we see the embedded systems market growing," Sabbah said. In addition, "we see automotive as an emerging and growing market. Its clearly one of the reasons why were doing this."

In his opening comments before taking questions, Sabbah said that "IBMs acquisition of Telelogic serves to accelerate the innovation of products that rely on software. This space includes industries such as consumer electronics, medical systems, automotive, and aerospace and defense. This kind of complex systems development often includes embedded software development. Venture Development Corp. estimates about $51 billion is spent annually on embedded software development."

Moreover, he said, "software is driving innovation in the products we use every day—from phones to cars to airplanes. Together, IBM, Telelogic and business partners will expand and accelerate our customers ability to define, model, build, test, deliver and govern the development of these simple and complex systems—with higher quality and faster time to market, while also reducing product cost."

Sabbah then highlighted defense and aerospace, health care, consumer electronic, and the automotive markets as key targets for the combined Rational/Telelogic entity.

"The consumer electronics industry continues to be driven by the vision of devices able to universally manage multiple types of voice, data and broadcast media," Sabbah said. "Customers, like Motorola, Lucent and Siemens, are working with IBM and Telelogic to make vision a reality."

Despite some perceived overlap in the product offerings of Rational and Telelogic, Sabbah said Rational will not dilute Telelogics technology. Although Telelogic will be a business line within the IBM Rational Software unit, "we will keep those product lines separate, and well respect the market Telelogic has created. We dont see it as overlap; we see it as complementary," he said.

Theresa Lanowitz, an analyst with Voke, said the acquisition will help expand IBMs view of the application life cycle.

"The Telelogic acquisition takes IBM well beyond the traditional enterprise life cycle and places them squarely into the emerging embedded and device software market," Lanowitz said. "The Rational brand of IBM has long been a proponent of embedded systems software."

And a Telelogic acquisition allows IBM to "focus on solving the life cycle problems of the embedded software market as well as looking forward to convergence issues the market can expect to face," she said. "The Telelogic acquisition is a positive move by IBM and shows commitment and vision to solving long-term complex problems brought about by the convergence of traditional software and embedded systems."

Marc Brown, vice president of product marketing for Borland Software, in Austin, Texas, said an IBM acquisition of Telelogic would leave Borland as "the key vendor for platform/technology neutral ALM [application lifecycle management] solutions. … The acquisition ensures that the Telelogic product line will be optimized to the IBM middleware and systems management solutions, thereby losing its more neutral position in the ALM market."

Hank Weghorst, CEO of Troux Technologies, also of Austin, said that although Telelogic has competed with Troux in the EA (enterprise architecture) space, he does not view IBMs move as enhancing Telelogics capability in that arena.

"Indicators surrounding the acquisition suggest that IBM isnt focused on the emergence of strategic EA, and its integration of Telelogic will likely not advance their offerings in this area," Weghorst said. "As the thought leaders in EA and IT transformation, we would prefer not to count IBM as a key competitor."

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