Expect More Acquisitions and Executive Exits in Tech Market
As you are reading this, I am in Tokyo for a round of meetings with several groups of Japanese high-tech vendors. While Im over in Japan, here is what I expect to be reading about the U.S. technology business.
The first guess is easy. Every week, some U.S. vendor is being acquired by another company. The most recent big acquisition in the works is Adobes $3.4 billion proposed buyout of Macromedia. This combination makes a lot of sense in bringing together Adobes PDF-based workflow system and Macromedias Web animation tools. The PDF business is based on being able to accurately track and reproduce exactly what a user will see. The Macromedia business features the cool but hard-to-monetize animation business. The combination of the two should go much more smoothly than what happened way back in 1994 when Adobe bought Aldus for the PageMaker program. Unlike many high-tech companies, Adobe seems to be able to acquire and successfully mesh new programs and companies. Im not sure what will be the next big acquisition Ill read about in Japan, but there is still a lot of cash sitting in high-tech companies coffers.
The second guess is also easy. Some exec will get tossed out the door. It took the departure of Carly Fiorina from HP to really set this trend in motion. At least she was on the job for a few years and had a track record to either admire or disparage. On the other hand, Mike Lawrie, the ex-IBMer and now ex-Siebel CEO, was tossed after less than a year. Terminating Lawrie after such a short stint (he was named CEO last May) is a lot like giving the new coach one season to win the championship.
Will the public departure of two prominent tech execs make it harder to recruit someone out of a secure, but not high-profile, post that person has held for 15 or 20 years? I think so. Will it also require more upfront salary and income guarantees for execs whether they fail or not? Yes, much to the detriment of the industry.
The third guess is that there will be much speculation in the press and among the companies I am meeting with over the state of the U.S. high-tech industry. Is the tech recovery, which never seemed all that strong to begin with, faltering? When IBM recently missed analysts earnings expectations by about 5 cents a share, the pessimists in the tech-economy ranks found new ammunition. Were IBMs difficulties solely due to the problems associated with closing sales at the end of the quarter? And what about sales softness in its Global Services unit? Isnt that the division where IBM has pinned much of its expectations for the future? The answer to these questions, I expect, will take a few more months to unfold.
While end-of-quarter sales and the Global Services business are IBM issues, there are also larger global trends to contend with. The continued rise of offshore operations in India could indeed be finally eating into the revenues of U.S. service providers. Strong revenues at companies such as Wipro (which in the quarter ended in December were $483 million, including an increase in services revenues of 38 percent) have to be achieved at the disadvantage of some other supplier. The ability to consolidate servers into blade configurations and easily deployed virtual storage environments means more computing horsepower at less cost, which is good for the customer but not necessarily good for the vendor.
Countering the lackluster numbers from IBM were strong quarterly earnings reports from Intel on the chip side and Yahoo on the Web side. Intels announcement of its WiMax chip set is the kind of push the technology industry needs to start building new applications. Yahoo continues to reinvent itself on a yearly basis.
While there is always a danger in writing a column in advance of expected news events, the current trends were already firmly in place before I boarded the plane. Acquisitions, change in executive ranks and an uncertain economy have always been part of the technology economy. The difference this time around is that the cycles are spinning faster, are more visible and have a strong effect not just on the U.S. marketplace but also on the worlds technology economy as a whole.
Editor in Chief Eric Lundquist can be reached at email@example.com.
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