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Sanity check: Seven tech industry acquisitions we would sanction

With many of the big tech companies hording piles of cash and many unstable companies licking their wounds from the recession, the tech industry is ripe for consolidation. See which potential acquisitions would make the most sense.

With many of the big tech companies hording piles of cash and many unstable companies licking their wounds from the recession, the tech industry is ripe for consolidation. See which potential acquisitions would make the most sense.

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In this economy, cash is king. Since in the end of 2008, big tech companies have been stuffing cash under their mattresses in case the current recession goes longer and deeper than expected.  Even companies with strong balance sheets have been cutting costs, laying off workers, and scaling back projects in order to build up their war chests.

As a result, you have companies racking up huge cash reserves, including Cisco ($26.7 billion), Apple ($24.5 billion), Microsoft ($19.7 billion), and Google ($14.4 billion).

Meanwhile, with the stock market shedding half of its value between July 2007 and January 2009, the market price of a lot of public technology companies has essentially been put on a "50% off sale."

This creates an atmosphere that is ripe for consolidation. As soon as the companies with the cash have confidence that the economy is at an inflection point, they will start spending money to position themselves for the turnaround.

We may be starting to see it. The Dow Jones Industrial Average has jumped over 1,000 points in the past 30 days. While that may be nothing more than a bear rally, during this time we've seen IBM make a play for Sun Microsystems. Although that deal fell apart, we should expect more tech acquisitions in 2009. Here are the seven most likely deals.

7. Apple buys Adobe

Apple has an extremely strong balance sheet, so you would expect it to be one of the first companies to go on a buying spree, but Apple historically does not do many acquisitions. Its most high-profile purchase was NeXT in 1997 - the move that brought Steve Jobs back to Apple.

The biggest acquisition you're likely to see from Apple in 2009 would be to buy Adobe, which has a wide array of software tools for graphic artists, photographers, and Web designers - some of Apple's most loyal Macintosh customers. With the iPhone and its App Store, Apple appears to have learned the lesson that the software makes the platform. And since Adobe is already building online tools such as Photoshop Express, it could also help Apple get a jump on the next generation of applications.

Of course, the big question mark here is that Adobe also makes its software for the Windows platform - and certainly sells more to Windows users - so if Apple bought Adobe would it make Adobe software Mac-only to try to drive more artists and designers to its platform, or would it use the opportunity to grow its software revenue from Windows users?

6. Oracle buys Salesforce.com

Oracle has talked a good game about cloud computing for a long time - long before it was actually called "cloud computing" - but the company is also heavily invested in the old software licensing model because that's where nearly all of Oracle's revenue comes from. So Oracle is making a glacial transition from the old world to the new world.

Salesforce.com is business world's most successful Software-as-a-Service application and its founder and CEO, Marc Benioff, was a 13-year Oracle veteran before he left to start Salesforce.com. Thus, Benioff knows Oracle CEO Larry Ellison very well. Many in Silicon Valley expect that it's only a matter of time before Oracle scoops up Salesforce.com at a fair price.

Has Salesforce.com matured enough and does Oracle feel threatened enough by other online application competitors to make 2009 the year for this acquisition to happen? The odds are probably 50/50.

5. Google buys Skype

Nearly everyone in the technology industry scratched their heads in September 2005 when eBay bought Skype for $2.6 billion. Why would an online auction site want to purchase peer-to-peer VoIP and collaboration software? Three and half years later, it still doesn't make sense.

In fact, in October 2007, eBay took a $900 million write-down of Skype - an acknowledgement that Skype wasn't worth as much as eBay had paid for it two years earlier. There are even rumors that Skype founders Niklas Zennstrom and Janus Friis are trying to convince private equity firms to help them buy back Skype from eBay.

One of the losing bidders for Skype at the time eBay bought it was Google. Since then, Google has launched Google Voice and Google Chat but has barely made a dent in Skype's market share. Google reportedly walked away in 2005 when the price got too high. The price would be much more palatable now, and Google still wants to find a place in the real-time communications market, so this could be an ideal play.

If not Google, then look for Cisco as another potential suitor for Skype. Cisco could make Skype interoperate with its enterprise VoIP systems and expand Skype to include some of the same communication and collaboration tools that Cisco has built into its enterprise VoIP software.

UPDATE: EBay now says that it will spin off Skype with an IPO in 2010; however, Skype remains a viable acquisition target in the meantime.

4. Microsoft buys Palm

Despite the fact that Microsoft has been in the mobile PDA/smartphone market for over a decade with Windows Mobile (formerly Windows CE) and has respectable market share numbers, the company's software lags woefully behind iPhone, BlackBerry, and Symbian, and there's no indication that Microsoft is making major progress.

Since 2008 was the first year that smartphones outsold laptops, it's clear that smartphones are increasingly becoming valuable "computers" for consumers and professionals on the go, and the smartphone market is a huge growth business in the years ahead.

Thus, Microsoft needs to make a bold move in the mobile space. The best option for making up ground quickly would be to buy Palm. The popularizer of the PDA has mobile development baked into it genetic structure, plus it has former Apple executive John Rubinstein, and it has its new Palm webOS, a next generation mobile platform that could give Microsoft the opportunity to get a jump on Apple, RIM, and Nokia.

3. IBM buys Red Hat

These two have had a 10-year partnership that has helped propel Linux into the mainstream as a viable platform in the data center. IBM clearly wants to dislodge itself from Microsoft's grip as much as possible and, as such, is promoting "Big Green Linux," "Security-Enhanced Linux," even corporate Linux desktops.

The best way to ramp up these strategies would be to go beyond cooperation and coordination with Red Hat and simply buy the company and integrate it into IBM. If IBM doesn't buy Red Hat, look for Oracle to make a run at it. Oracle already offers support contracts for Red Hat Linux since its software runs on top of Red Hat as one of its primary platforms.

2. Cisco buys VMware

Enterprise storage giant EMC acquired VMware for $635 million in 2003, so technically VMware is not for sale. However, while VMware is the current market leader in virtualization, it is under attack from Citrix and Microsoft, and EMC can't necessarily do a whole lot to help so you could see EMC sell VMware.

Meanwhile, last month Cisco announced its intention in jump into the data center market with blade servers, and it named a variety of the partners involved in the initiative, including VMware. Cisco wants to go big with virtualization and make it mainstream as quickly as possible in order to use the technology to make data centers more flexible, more manageable, and more energy-efficient.

While Microsoft and Citrix have VMware surrounded in the virtualization market, and could use their advantages to undermine VMware, Cisco has deep pockets to help develop the technology, plus a variety of other data center technologies to integrate VMware with, and a powerful marketing engine to promote it.

1. Dell and EMC merge

Perhaps the biggest technology deal of 2009 could be a tie-up between Dell and EMC, which would nearly rival the HP-Compaq blockbuster in 2001. Like other pairings on this list, Dell and EMC have had a long-term partnership so they already know each other well.

Dell is struggling through a period in which it is trying to re-invent itself on a number of fronts - product design, customer service, and distribution. Meanwhile, EMC, the world's leading storage vendor, is flush with cash and has the opportunity to make a big move.

Because EMC operates at the top end of the enterprise market with mainframes and big Unix servers while Dell has a stronghold in the mid-level enterprise market with Windows and Linux servers, the combination of the two would create a powerful data center company.

The challenge may be that EMC has just become a key partner for Cisco in its new data center strategy, and EMC also has relationships with IBM. However, a closer relationship with either of those two would mean EMC playing second fiddle, but a merger with Dell could give EMC a much more visible leadership role in the data center market.

Other companies that could become acquisition targets in 2009:

  • Sun Microsystems
  • Juniper Networks
  • Unisys
  • NetApp
  • Citrix

About

Jason Hiner is the Global Editor in Chief of TechRepublic and Global Long Form Editor of ZDNet. He is an award-winning journalist who writes about the people, products, and ideas that are revolutionizing the ways we live and work in the 21st century.

29 comments
enquiries
enquiries

Novell has been down so long that people have just about forgotten about this misguided company - but for a buyer there is a goldmine of code within a huge array of networking software products.

arjaym
arjaym

Was it already announced? Google buys skype? I can't believe that. I think they want to compete with yahoo because they have their own IM - Yahoo Messenger. Google buyed youtube and it is a good idea. THen the skype, I can't wait to check on that. I already used skype as my personal IM since 2 years already. so Cheers... ;)

dcolbert
dcolbert

Apple may have found that software makes the platform, yet Apple has never had wonderful success with productivity applications themselves since the days of AppleWorks. They haven't ever even been that successful at PC manufacturing. Apple is a consumer electronics company... and maybe a music vendor. Their culture is so overpowering that any product, brand, or outside organization they assimilate will inevitably become "Apple-ized" - meaning that there is very little value in an acquisition outside of IP and patents that they may get in the bargain. I'd predict that such an acquisition would decimate only undermine Adobe's place in the market. The likely result? After several years when the Non-compete clause runs out, people from the original Adobe come back into the market and make a NEW suite of Adobe like products that take the market by storm, while Apple's Adobe disappears under a new brand, languishes, and dies. Microsoft and Palm - here we're talking about roadmaps. Microsoft's vision of convergence calls for unified look and feel, integration and operation across their universe. Palm has never had a strong focus on those features, and with the Pre, they're clearly headed in a completely different direction (one that Microsoft is probably very opposed to, actually). Again, outside of getting some patents and IP (provided current lawsuits against Apple go Palm's way), I don't think they would want to do much with the actual acquisition from a PLATFORM perspective. In fact, I imagine they would rather see Palm continue as an individual going concern, drawing attention and resources from Apple and RIM. Acquiring Palm, for Microsoft, just allows Apple and RIM to worry about one less competitor, focusing on the NEXT weakest player in the smartphone arena. Guess who that is? If four guys are running from a hungry bear, being the SECOND slowest runner isn't any problem... but being the SLOWEST guy... then you've got an issue.

ncudmore
ncudmore

Apple to buy Sun. Apple have been trying to break into the server market with xservers and xsan, but a lot of 'corporate' types wouldn't look at Apple boxes as a serious platform for say Oracle. Sun used to be very strong here and so have the 'qdos' for the corporate market. Also, with both now on a flavor of UNIX, this would sense for cutting development costs. HP/Compaq to buy Skype. As Cisco have announced moves into the server market, HP no doubt will want to come back with stronger answers to it's existing switches range. Skype would give them a jump onto the VOIP marketplace; add a gateway product from the internal VOIP network to the outside and millions of clients/customers and you've a ready market. How many sales/customer focused companies offer freephone numbers which they have to pay the telecoms provider for. Now in place of that, think free worldwide client contact, that's one heck of a benefit over existing Avaya, Nortel, Cisco.

Techrepublic
Techrepublic

Why would Apple want to buy Adobe? Illustrator? Hardly the thing Apple is going for... a mature, almost platform agnostic backwater of a market with little impact on future technology. Apple already encroaches on Adobes territory with Final Cut and Aperture. Adobes Premiere and Photoshop with their huge legacy code would be simply superfluous and too troublesome to support. Apple would base any professional web design tools on webkit, Dreamweaver would not be worth anything to them. PDF reading, creation and editing is already integrated into all Macs. Desktop Publishing is no longer a make or break market for Apple - perhaps years ago, when Quark dragged their feet during the transition to OSX it would have made sense for Apple to get involved, not anymore. ColdFusion? Give me a break... And Flash? Apple has made it clear it supports web standard frameworks (based on HTML/javascript, such as Sproutcore) over proprietory solutions such as Flash. Flash would be killed off the moment Apple got their hands on it... ...however, at this moment in time it is actually beneficial for Apple to see Microsoft and Adobe fight it out and diminish each others efforts in the Silverlight/Air competition for RIA marketshare. Overall Adobe has hardly anything to offer that Apple needs or they are not involved in already or could get easier and cheaper elsewhere.

srinivas.macha
srinivas.macha

Wonder why your list doesn't figure Yahoo! Also, so many IT-services companies (Accenture, Infosys etc) are flush with cash as well. In addition, this list focuses only big-ticket acquisitions. There are several mid-tier product plays whose growth plans are starved of cash.

j.bird
j.bird

Surely it's going to happen one day?

ccollins
ccollins

Just read this morning that a free Skype app is out that turns the iPod Touch into a phone. It has been downloaded over a million times in just 2 days. Not sure whether they would capitalize on it or kill it but it would be interesting.

jasonhiner
jasonhiner

"If four guys are running from a hungry bear, being the SECOND slowest runner isn't any problem... but being the SLOWEST guy... then you've got an issue." That's an analogy I've never heard before.

NickNielsen
NickNielsen

[i]Apple has made it clear it supports web standard frameworks (based on HTML/javascript, such as Sproutcore) over proprietory solutions such as Flash. Flash would be killed off the moment Apple got their hands on it...[/i] I wasn't aware Quicktime was a web standard...

alewisa
alewisa

Acquisition for the revenue share would make sense. However, imvho any of the above acquisitions would simply end up as megers that subsumed the minor company.... goose killing golden eggs, springs to mind. Skype is interesting. In 2003 I was the 18th person to donwload Skype... the following day, I recommened to my emmployer (Global Crossing) that we aquire the company, for one of two reasons 1. To kill the technloogy, or block rival acquisition, as VoIP was the biggest threat to traditional telco revenues ever witnessed. 2. Option B (the preferred option, as most Uk readers would understand). Acquire, develop, and deploy. Continue to give away the client to build a user base, address the then Achillies heel - the fixed PC restriction (one's address book was stored locally, not on a central directory accessible from anywhere) and make the software mobile. Continue to give away to build share. Meanwhile, leverage GXs network by establishing VOIP/PSTN gateways, offering skype-to-PSTN calls at a fraction of a penny above network cost. ROI would be acheived by offering this as a premium service, by either subscription or PAYG. Meanwhile, integrate the technology into core voip products for enterprise deployment (esp after the voip "solution" we deployed for our largest golbal customer ... Rejected by the then head of global product management as Skype was an amateur desktop gimmick, much like all other PC internet telephone programs... An email two years later from congratulated me on still being "18 months ahead of the curve, shame we didnt listen". Skype has a use, but not in ebay.

jasonhiner
jasonhiner

I agree. In fact, it's very likely that we'll see lots of smaller acquisitions like that. This list focuses on the big names that everyone has heard of, in order to get the conversation started.

ljmonson
ljmonson

While their stock is not what it once was, nobodies is, Intel has billions in reserve cash. I have heard of a number of rumors and Intel, when their stock was high, was spending ~3 billion a year in acquisitions. Anyone have any targets for the big dog.

blarman
blarman

I just can't see Microsoft buying Palm for any reason other than to scrap-heap it. Palm uses it's own OS and it's own methodology which don't fit with Microsoft's at all. Sorry, Jason, but my gag-reflex just wouldn't allow this one to go down. I would also mention that the HP-Compaq deal wasn't a blockbuster except for the two heads that dreamed it up (and got paid tens of millions for pushing through the "deal"). All Fiorina (it sure wasn't the rest of HP) did was buy up a failing competitor. Did it improve their balance sheet? Not when you compare the write-downs, lay-offs, and re-structuring against the new revenue.

tom
tom

Both companies are leaders in their current markets with very little overlap in products and services. HP would gain a large presence in point of sale hardware and software and in ABM and other transaction processing markets, more markets for printer and computer products. NCR would gain an assured source of printer and PC products on which to build in its' current markets. And of course the current president of HP knows NCR and could possibly lead the best integration of two high tech companies to date. Isn't speculation fun ? !!!!!!

henrif
henrif

You forgot to mention the struggling Nortel, which has been disputed by Avaya and Siemens.

arjaym
arjaym

WOW great! In just 2 days they reached millions of download. whew. Very interesting. I think google might pull them up if ever they get skype. Cheers. ;)

dcolbert
dcolbert

Out in the West, where hiking is a popular sport, there is a lot of wisdom of this nature. "When outrunning a bear, you do not have to be the fastest runner, just faster than your partner". When hiking, they recommend you wear tiny bells to alert bears that you are in the area, as they will avoid contact with humans when possible. You should also carry pepper spray at all times in the back country. You can identify the different types of bears by their scat, brown and black bears have scat that contains berries, nuts and grasses in them and smell grassy. Grizzly bear scat has small bells in it, and smells like pepper spray.

Techrepublic
Techrepublic

"supports web standard frameworks ... over proprietory solutions such as Flash." Multi-media standards were not part of my reasoning, it was about RIA. Flash is often a wrapper used to stream Qt video, that is perhaps why you are confused.

Techrepublic
Techrepublic

While for the other companies I would accept revenue as enough reason for an acquisition for Apple there is no historic background to assume a similar motive. Apple's acquisitions are usually strategic: Next certainly was, Proximity is a media management company more in line with Apple's content strategy, in the same way P.A. semiconductors has been a strategic hardware move. On the software side, Silicon Color was bought and then their product was given away for free with Final Cut, E-magic was bought for the specific purpose of strengthening essential media production capabilities of the platform. I can't see a profit motive suddenly making an impact.

dcolbert
dcolbert

Intel got burnt really bad under Craig Barrett during the dot.com bubble with a number of acquisitions. Additionally, they have some strong principles and philosophies that are almost indocrinated into all level of employee in the organization and that arise at the HIGHEST level of the organization (which effectively has been Andy Grove for the last 35 years regardless of the currently active CEO). Among these principles, "stick to your core competency". In Intel's case, many people would consider that Microprocessor design, but in fact, another core philosophy at Intel is that their core competency is in fact "manufacturing". That is what they do, that is where the majority of their infrastructure, investment and R&D lies. If there is another former Intel employee reading this thread, I'm sure I can get a "halleluljah from the choir" on this, although I doubt a CURRENT Intel employee would be bold enough to speak the sacred secrets of the initiated here in public, though. But these really aren't very well kept secrets about Intel's corporate culture. The problem with Craig Barrett's acquisitions was that they tended to stray from Intel's "core competency". Hosting Services, retail wireless network equipment and designing kids toy microscopes for direct retail sale are NOT what Intel does. Mr. Barrett was almost certainly driven by another corporate philosophy, that of the "strategic inflection point", one which I believe he was keenly aware Intel (and the industry as a whole) were smack in the middle of during that period. C.B. responded by going on a mad spending spree spreading his bets across the table on all kinds of different, divergent technology industries that he thought MIGHT be the next big thing. And some of them might have been, if NOT under the management of a corporation that had a key core competency in manufacturing. Instead, they languished, sucked off profits from the profitable parts of Intel (which at the time, manufacturing FLASH memory was the biggest profit generator for Intel, not producing CPUs. I imagine that probably hasn't changed) and generally brought the stock down the record, all time lows. I don't think Otellini is eager to make the same set of mistakes as his predecessor, and I would imagine Intel would approach this market with a VERY conservative nature.

jasonhiner
jasonhiner

The talent, product lines, and intellectual property that HP got from Compaq have paid dividends, especially in servers and laptops.

wdewey@cityofsalem.net
wdewey@cityofsalem.net

Purchasing Palm would only make sense if they wanted the new OS that palm is coming out with. I don't see that happening because that would be admitting that Windows CE is lacking. Microsoft tends to through money at projects to make Window work or to develop new markets for windows. Bill

alewisa
alewisa

is there a figure available? As opposed to "how many downloads" of skype there have been, due to issues how you count them. All since 2003, or just all of the latest version? How many Skype users are there? Lets pluck a figure out of the air - 173milion. That might be a powerful enough reason: "We have a client that is installed and in use on 173 million desktops. And we can put advertising on it. How much are you willing to pay for your ad on our client" Thats quite apart from the obvious primary use, as a voip client.

alewisa
alewisa

Reading that reminds me of a Dennis Leary line; "People who examine their faeces for fibre have too much f---ing time on their hands"... If a bear was chasing me in the woods, I would not be checking its s--t for content!

alewisa
alewisa

Well, you did make the point that it generate cash from Windows users... which is revenue. "Strategy" is an interesting term, and not one alwatys understood by CEOs... Juniper is interesting. Their infrastructure equipment is far superior to Cisco (ask any ISP), especially core switches. Hopefully they will not be acquired by Cisco, and its a shame they dont have the money to purchase Nortel (another decent infrastructure house).

donpro1
donpro1

of all the purchases mentioned, this makes most sense. EMC owns VMWare but only as an independent susidiary. Even EMC employees have to jump through hoops just to ge VM products. I know I was recently laid of from EMC (from the Microsoft practice, one reason EMC's flush with cash). Since VMWare can run quite well on Intel platforms, and Dell sells mainly to small and medium businesses, this acquisition would place EMC in a position to dominate the storage area, as well as offering a total business solution to any business regardless of size. This includes offering a total IT solution from laptops, desktops, monitors, and either virtual servers running on EMC storage arrays, or on Dell servers. Tehey can also offer support and consultancy for Microsoft products that the hardware would support. I realize this is a "Wow, wouldn't this make a lot of sense?" speculation, but I'd welcome EMC buying up Dell.Then maybe they'd hire me back. :)