Software is the straw that stirs IBM's unique blend of profit-making mix. This is no more evident than in Big Blue's announcement of its intent to acquire Sterling Commerce, a subsidiary of AT&T, for approximately $1.4 billion in cash.
Software is the straw that stirs IBM's unique
blend of profit-making mix. This is no more evident than in Big Blue's May 24 announcement
of its intent to acquire Sterling Commerce, a subsidiary of AT&T, for
approximately $1.4 billion in cash.
That IBM announced its acquisition plans
as the month of May comes to an end is no surprise, as on May 12 the company
told investors and analysts that it was looking to continue to expand in the
software arena. During IBM's meeting with
its investors, company CEO Sam Palmisano
said the company's acquisition strategy will continue to focus on software
companies that align to IBM key growth
plays, including analytics, Smarter Planet and cloud computing. Earlier this
month, IBM bought privately held Cast Iron
Systems, which delivers software to help companies integrate cloud
IBM said it will spend $20 billion on
acquisitions over the next five years and that the focus in this area will remain
on software companies, given its higher margins and that it is IBM's
most profitable business. Since 2003, IBM
has acquired 57 software companies for around $13 billion. IBM's
software business continues to be highlighted as a key contributor to IBM's
profits and growth. IBM projected its
software business will become almost half of the company's profits by 2015.
The move to add Sterling Commerce to the mix is aimed at expanding IBM's
efforts to help customers develop more intelligent business networks by
simplifying the way organizations connect and communicate with their customers,
partners and suppliers-on premises or through a cloud delivery model. The deal
is a complement to the Cast Iron deal, and indicates IBM's
seriousness about delivering a hybrid model-on premises and cloud-with its
software and services solutions.
"This is a growth market," said Craig Hayman, general manager of IBM
WebSphere software. "And we choose to focus on high-growth opportunities."
Hayman said IBM will integrate its Cognos
business analytics technology, Ilog business rules technology, as well as Cast
Iron cloud and Lombardi business process management technology with the
Sterling Commerce platform, "so we can bring these end-to-end capabilities
to the Sterling domain."
Indeed, Hayman said Sterling's
solutions will become part of the IBM
Software Group's industry frameworks offerings.
IBM Software is a key driver of growth
for IBM. In the first quarter 2010, IBM
Software revenue grew 11 percent year to year. Fueled by investments in these
and other high-value, high-margin software opportunities that help businesses
improve their performance and competitiveness, the profitability of IBM
software has nearly tripled to more than $8 billion since 2000.
Sterling Commerce complements IBM's
business process integration and transaction software portfolio, which grew
more than 20 percent in the first quarter of 2010. The combination of IBM
and Sterling Commerce supports the backbone of business transactions.
Simplifying these transactions is a key underpinning of IBM's
Smarter Planet campaign to automate, transform and improve virtually every
aspect of business and society-from electrical grids and transportation to
health care, government operations and food protection, to name a few.
Sterling Commerce is a leading provider of business transaction and selling
and fulfillment software. The addition of Sterling Commerce will accelerate IBM's
efforts to capture more share in the business integration software and services
market. Market research firm Gartner estimates this market is $5 billion and
growing at 10 percent annually.
More than 18,000 global customers rely on Sterling Commerce software in a
broad range of industries, including financial services, retail, manufacturing
and distribution such as Boston Market, Farmers Insurance, Honeywell, Boise
Cascade, Monsanto, Pitney Bowes, among many others. The company manages more
than 1 billion interactions per year for these customers.
IBM's Hayman said the addition of
Sterling Commerce is attractive because of the cost savings customers can gain
from automating their interactions with their business partners.
Bob Irwin, president and CEO of Sterling
Commerce, said he believes "IBM and
Sterling Commerce are a great and a natural fit together. He said Sterling's
business integration suite is a perfect complement to IBM
software, and Sterling's
fulfillment technology complements IBM
WebSphere." Irwin also said he expects the IBM
acquisition to help Sterling technology move into new
vertical markets and geographic areas, particularly, Japan,
China and Eastern
Meanwhile, Hayman said Sterling Commerce and the company's employees --
"Sterlites" as Irwin referred to them during a May 24 press
conference -- will join the IBM WebSphere
team and be part of the IBM Software Group.
Also, IBM, which did not have a major IBM
presence in the Dublin, Ohio,
(near Columbus, Ohio)
area where Sterling Commerce is headquartered, will indeed have such a presence
should the acquisition pass regulatory approval, Hayman added.