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Big Buys Shifting Markets

10.07.2012

Microsoft Corp. announced two acquisitions – for $1.2 billion it bought the enterprise social networking vendor Yammer Inc. and Perceptive Pixel Inc. (PPI), a giant touchscreen maker, for an undisclosed sum. Elsewhere, Dell Inc. said it intends to acquire Quest Software Inc. for $2.4 billion while Ingram Micro Inc. is purchasing BrightPoint Inc. and Micron Technology Inc. is buying Elpida Memory Inc.

www.elpida.comFocal Points:

  • Microsoft pushed further into the enterprise arena by announcing its intent to purchase Yammer, a cloud services company that provides enterprise social networking, for $1.2 billion. Yammer is a San Francisco-based company with more than five million registered corporate users. Microsoft intends to fold Yammer into its Office Division but the unit will continue to report to the current CEO David Sacks. CEOs Ballmer and Sacks acknowledged Microsoft plans on integrating Yammer's technology with Office, Office 365, Dynamics (CRM) and Skype. Nonetheless, Microsoft will continue to offer Yammer as a standalone cloud service, too. Additionally, Microsoft has acquired Perceptive Pixel, a provider of large multi-touch displays for an undisclosed sum. The company sells 27-, 55-, and 82-inch LCDs and recently announced the first-ever simultaneous pen and touch technology for its devices. Microsoft has not made any statements about its plans for the unit. The New York-based company was founded in 2006 by Jeff Han, a renowned pioneer in multi-touch technology.
  • Dell won the bidding war for Quest Software, a provider of access management, data archiving, database, performance and systems tools, with its bid of $2.4 billion. The purchase price was a 44 percent premium to its March 8th closing price – the date when the acquisition talks first began with Insight Venture Partners. Quest is based in Aliso Viejo, CA and, according to Dell, has 3,850 employees of which 1,279 are software engineers in its R&D organization and 1,440 are direct sales representatives. The company also brings along 4,000 channel partners, which were responsible for 40 to 45 percent of sales. Quest had revenues of $858.2 million in 2011, a year-over-year growth rate of 11.9 per cent but net income fell in half to $43.9 million. Gross margins are at 86 percent and the company has more than 100,000 customers worldwide. Once the deal closes, the Quest software should compose approximately 72 percent of Dell's software revenues.
  • Ingram Micro spent $840 million for specialist wireless device and services distribution company, BrightPoint. Founded in 1989, BrightPoint had fiscal year 2011 sales of $5.2 billion, up 44 percent year-over-year. The distributor employs 4,000 people in facilities across 24 countries and claims to have 25,000 B2B customers worldwide. Company executives stated the acquisition enabled the firm to achieve its objective of expanding into the mobility market. Meanwhile, Micron acquired the bankrupt and debt-ridden Japanese DRAM manufacturer Elpida for approximately $2.5 billion. The acquisition doubles Micron's DRAM market share to 24 percent, second only to Samsung Group. With this purchase the DRAM supplier market is now limited to three main providers: SK Hynix Inc., Micron, and Samsung.

Experton Group POV: With Skype and Yammer Microsoft now has some heavyweight brand names in the cloud computing space that it can potentially leverage. These cloud services should help the company sell its other cloud services as well as its other unified communications offerings. However, Yammer will not be part of the upcoming Office 2013 release. When it gets folded into the Office roadmap has yet to be determined. The PPI deal appears to be designed to be incorporated into the Surface tablet product set. What makes this most intriguing is that Microsoft is building its own hardware products and may be planning to become totally vertically integrated. This shift may not sit well with the company's long-time business partners, thereby further narrowing the set of vendors that will offer Windows 8 smartphones and tablets. Microsoft is changing its business model and striking out into uncharted horizons, without ensuring it has its back protected by its channel partners. IT executives need to pay attention to the shifts in the business model and pricing arising from the new strategy so that the enterprise is not caught of guard when contract negotiation time arrives. Dell now has a $1 billion software business that it can add to its hardware products and services offerings. The Quest Software tools mesh well with the Dell brand in that they are good price performers and they are complementary to the other Dell software offerings. IT executives can now expect Dell to claim to be a full-service provider and sell bundled offerings wherever it can. In that software margins tend to be large, Dell can maintain its least-cost image through nicely bundled packages while applying pressure to the software margins of its competitors. IT executives should take advantage of Dell's move into the enterprise software management space. Consolidation continues apace in the channel and supplier markets as well, with the Ingram Micro and Micron purchases. This may be good news for the vendors but it may slow the drop in DRAM prices and may actually allow Ingram Micro to increase their prices through cross- and up-selling and bundling the services. With the base storage technologies of hard drives and DRAM memory consolidating into sets of three providers, the previous glut and drought cycles may be coming to an end and price cutting may become less dramatic. If this occurs, IT executives will end up spending more on storage than previously projected, which could strain budgets.

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