IBM and the New Age
Subhadeep is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Even ultra conservative Big Blue has realized that the New Age has dawned on computing. At least that’s what most people would say about IBM’s (NYSE: IBM) plans to acquire Kenexa Corp. (NYSE: KNXA), the latest in a long line of 25 purchases that it has made over the past three years.
But then, when I see this vis-à-vis its rollout of the latest and most powerful mainframe to have come out from the company’s stables, this seems nothing but pure business sense aimed at a win-win situation. Even as software is the obvious focus of the company now, IBM is well aware that banks and government agencies will probably be requiring mainframes to support their humongous data systems. And the actual beauty of it lies in the fact that the mainframe will provide support to virtually every form of cloud support environment. So, with the hardware part taken care of for now, let’s take a long hard look at the software side.
Human resources software maker Kenexa’s acquisition is probably the biggest sign that IBM is now firing on all cylinders as it goes hotly in pursuit of rivals SAP AG (NYSE: SAP), Oracle (NASDAQ: ORCL) and Salesforce.com (NYSE: CRM), the latter being a market biggie for web-based software. While SAP has concentrated on acquiring SuccessFactors Inc., others such as Oracle have complemented the move by taking over Taleo Corp. Not to be left behind, Salesforce.com acquired Rypple, a web-based software provider.
Kenexa is sure to be a good buy, boasting of around 9,000 customers as part of its portfolio, including bug guys such as Starbucks, General Electric and Boeing. But more than that, IBM has wised up to the fact that business analytics is where the money is now. And it’s not ready to let its rivals have a cakewalk.
The acquisition integrates smoothly with the company’s present Software-as-a-service (SAAS) offerings. After all, having spent around $16 billion on as many as 30 such acquisitions in the analytics space, IBM has to know where it’s heading. And with no upfront licensing costs as well as minimum need for hardware installations, clients are already heavily tilted toward cloud-based software. Business analytics is a high-margin business, something that web servers and other infrastructure software will find it difficult to match.
This is one company you can perhaps put your money into and wait for a while for the returns to come in. It’s still confidently rolling out mainframes, invested wisely in the cloud and knows it can always bank on its sheer reputation. After all, not every company has doubled its dividends every five years since way back in 1997. Time to think about that, folks!
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