Business Tech

Logitech, a maker of Webcams and other peripherals, said Tuesday it will acquire LifeSize Communications for $405 million in cash. The move puts Logitech into the video conferencing market.

LifeSize offers high-definition video-conferencing systems. LifeSize's customers range from small and medium-size businesses to large companies. I've tested out a few LifeSize systems and found them to be solid systems for the money.

The move by Logitech means that most of the standalone video conferencing players have been acquired. Cisco is planning to buy Tandberg but is having some trouble. And once LifeSize is off the board, Polycom will be the last player standing.

Read more of "Logitech gobbles up LifeSize; Enters video conferencing" at ZDNet.

Network equipment giant Cisco Systems is feeling good enough about the economy to rev up its acquisition engine, pledging to spend more than $6 billion in a single month on smaller companies.

Cisco on Tuesday announced its third acquisition this month and its sixth acquisition so far this year. The company said it plans to buy Web-based security software company ScanSafe for about $183 million in cash.

Two weeks ago the company announced plans to buy wireless equipment maker Starent Networks for $2.9 billion. And at the beginning of the month, it said it would buy Norwegian video conference equipment maker Tandberg for $3 billion

After a brief acquisition hiatus the past year during the economic downturn, Cisco is back in the merger and acquisition saddle. In all of 2008, Cisco bought five companies, all well below the $1 billion price tag. In 2007, it bought a total of 11 companies, including the $2.9 billion purchase of WebEx.

(Credit: Vibol Peou/CNET)

Cisco's eagerness to get out its checkbook again, indicates two things. First it shows that Cisco, which had about $35 billion in cash as of the end of July, is confident enough in the stability and recovery of the economy that it can make some big purchases. And second, it's a good sign that Cisco is seeing some good deals, as the economic downturn has likely depressed the value of many potential acquisition targets.

"Cisco has a lot of cash," said Zeus Kerravala, a senior vice president at Yankee Group. "And it's definitely a buyers' market out there today. If you look at the timing and the amount of money it's spending, I think you can definitely say the company is feeling better about spending that cash now than they were earlier this year or even last year."

Tech bellwether
Cisco, which makes equipment that powers the Internet and most corporate networks around the world, is seen as a bellwether in the tech industry. Because the company's products are used by almost every large company, government entity, broadband and telephone service provider, and thousands of small and medium businesses around the globe, the company has a strong pulse on the economy and technology spending in general.

The company's CEO John Chambers is viewed as somewhat of a technology oracle. And investors listen carefully to what he says and the tone of his comments for hints at what to expect from other companies in the technology sector. Cisco was one of the first companies, well over a year ago, to see the economic downturn coming. The company had noted a slowdown in spending from some of its biggest corporate customers in the U.S. and Canada.

And during the company's most recent quarterly earnings conference call in August, Chambers said he was optimistic that the economy, at least in the U.S., was starting to improve.

"We saw a number of positive signs in the economy and in our business over the fourth quarter," Chambers said during the call in August. "It's still early, but if we continue to see these positive trends in one or two more quarters, there's a good chance we say the tipping point occurred in the fourth quarter."

Specifically, Chambers said he saw orders for new products reverting back to normal trends in the company's fourth fiscal quarter. And he said he was starting to see sequential growth again.

It would appear that the positive trends that Chambers saw in the fourth quarter are continuing in the first quarter, as Cisco now feels confident enough to make some big purchases.

This is important because during the company's 25-year history, Cisco has traditionally grown its business through acquisition. During the dot-com and telecom boom times, Cisco was one of the biggest acquirers in the technology industry. In 1999, it spent roughly $14 billion on 18 companies, including nearly $7 billion on optical networking start-up Cerent. In 2000, it spent about $12.5 billion on 28 deals.

After the bubble burst, the company's M&A activity was relatively light until 2005, when it bought Scientific Atlanta for $6.59 billion. In 2005, Cisco spent a total of about $7.7 billion, the most money it had spent in one year on acquisitions. With two months left in 2009, Cisco is getting close to breaking that record this year.

As the company attempts to get into new markets like video conferencing, data center, wireless, and consumer products, it is acquiring companies that meet its strategic needs. Chambers has repeatedly talked about the importance of investing during a downturn to position the company growth when the economy returns.

Cornering new markets
ScanSafe is a cloud-based software service that allows customers to license applications on demand. The company said ScanSafe's technology will help Cisco expand on capabilities it added when it bought IronPort in 2007. Cisco also plans to integrate ScanSafe's service with its AnyConnect VPN client to provide a secure mobility solution. And Cisco will use ScanSafe's data centers to provide new cloud security services.

The ScanSafe acquisition is small compared to the other two big acquisitions this month, but Kerravala said it's still very important from a strategic standpoint.

"This acquisition is more aligned with what Cisco is doing in the cloud and in the data center," he said. "The biggest barrier to cloud computing and services is security. So this fits in nicely with Cisco's cloud, data center, and borderless enterprise initiatives."

But the hefty price tags that the company is paying for larger more established companies, such as Starent and Tandberg, suggest Cisco is also looking for a kick-start to jump into new markets like video conferencing and the data center. This is especially important as it goes head-to-head with large competitors, such as Hewlett-Packard and IBM. These deals not only help Cisco compete more aggressively, they help it deliver the growth and performance that Wall Street expects from the company.

That said, Cisco probably wouldn't have considered these big acquisitions if it didn't feel like the economy was returning to normal.

"In a down market, I doubt they'd look for these big deals," Kerravala said. "Now with things coming back, it looks like Chambers thinks the timing is right. When you are being asked by Wall Street to grow 10 to 15 percent each quarter and you're as big as Cisco is now, you have to make big deals to sustain that kind of growth."

Former MySQL leader Mårten Mickos on Thursday urged European Union regulators to approve Oracle's acquisition of Sun Microsystems and its MySQL database group, arguing that further waiting undermines the very competitiveness the EU is trying to protect.

In a letter to Neelie Kroes, the European Commission's commissioner for competition, Mickos said the regulators were correct to question whether Oracle buying Sun and its open-source database software would harm the market. But Mickos, who ran MySQL from 2001 until 2009, believes that the Oracle acquisition won't hurt competition--and that holding the acquisition up will:

"Every new day of uncertainty is potentially very harmful to the various businesses of Sun, reducing competition in the market. A delay in the closing of this transaction is therefore only going to work against the respectable goal that you set out to achieve when launching the probe into this acquisition," Mickos wrote in the letter. (See this separate post with the full text of Mickos' letter to the EU.)

Mårten Mickos, surrounded by inflatable MySQL dolphin mascots.

(Credit: Benchmark Capital)

It's not clear what effect Mickos' letter will have on the regulators, but Mickos knows MySQL's business well, and Oracle can use any help it can get in dealing with the acquisition. The U.S. Department of Justice approved the Sun acquisition in August.

Mickos, now entrepreneur in residence at Benchmark Capital, said in an interview that he no longer has anything financially to gain from the transaction. Instead, he's motivated now by trying to help the employees still at Sun--and moreover, its MySQL unit--urging rational discussion about the matter.

"I couldn't live with the fact that I'm not taking action," Mickos said.

Mickos declined Oracle's advances when MySQL was independent, but he agreed to Sun's acquisition in 2008.

In September, the European Commission said MySQL was at the heart of its investigation of the Sun acquisition:

The Commission's preliminary market investigation has shown that the Oracle databases and Sun's MySQL compete directly in many sectors of the database market and that MySQL is widely expected to represent a greater competitive constraint, as it becomes increasingly functional.

The Commission's investigation has also shown that the open-source nature of Sun's MySQL might not eliminate fully the potential for anticompetitive effects. In its in-depth investigation, the Commission will therefore address a number of issues, including Oracle's incentive to further develop MySQL as an open-source database.

Oracle Chief Executive Larry Ellison said MySQL competes in a different part of the database market than Oracle's existing products and that Oracle has no plans to spin MySQL off into a separate company.

Mickos summarized his argument this way:

1. Oracle has as many compelling business reasons to continue the ramp-up of the MySQL business as Sun Microsystems and MySQL previously did, or even more.

2. Even if Oracle, for whatever reason, would have malicious or ignorant intent regarding MySQL (not that I think so), the positive and massive influence MySQL has on the DBMS market cannot be controlled by a single entity--not even by the owner of the MySQL assets. The users of MySQL exert a more powerful influence in the market than the owner does.

MySQL is used to power large-scale Web sites with many servers, a role for which Oracle's back-end database software isn't suited, he argued. It's therefore in Oracle's interest to boost the MySQL business, Mickos said.

As evidence for his case, Mickos pointed to Oracle's 2005 acquisition of InnoDB, whose database engine software is used within MySQL. "Oracle increased their investment in InnoDB since that time, making MySQL a stronger player in the market," he said.

And perhaps reflecting his new role at a venture capital firm, Mickos concluded with a note about the broader effect of the EU's actions:

"If...it becomes difficult or impossible for large companies to acquire open-source assets, then venture investments in open-source companies will slow down, harming the evolution of and innovation in open source, which would result in decreased competition," he said.

Application management and testing firm Compuware on Wednesday said it will buy Web optimization company Gomez for $295 million in cash.

Compuware provides software and services to help its customers optimize the performance of their in-house applications. It typically delivers tools to manage server-based applications in the enterprise market. In recent years, Compuware has also generated sales by offering its tools via software as a service (SaaS), where it hosts or delivers software for its customers over the Internet.

Gomez helps businesses monitor and manage the performance of their Web sites and Web-based applications. The company looks at issues such as cross-browser compatibility and Web load balancing to ensure that a customer's Web site is fully optimized.

Like Compuware, Gomez also uses the SaaS model to deliver its product to the customer. With the addition of Gomez, Compuware said it expects to become the world's leading SaaS infrastructure management provider.

"Together, Compuware and Gomez provide the industry's only unified application performance management solution, spanning the enterprise and Internet," said Compuware President and Chief Operating Officer Bob Paul. "For business and IT executives who are moving more business-critical applications onto the Internet, Compuware can now offer unified visibility, isolation, and resolution of application performance problems from the data center to the customer."

Based in Detroit, Compuware has about 23,000 customers worldwide. It brought in sales of $1.1 billion for fiscal 2009. The company's 4,275 employees work out of 84 offices scattered across different countries.

With more than 2,500 customers around the world, Massachusetts-based Gomez saw revenue of $47 million in fiscal 2008. "Substantially all" of the privately held company's 272 employees, including the leadership team, are expected to remain with the organization, Compuware said.

"Compuware's financial strength, its R&D horsepower, and its geographic reach will benefit both our employees and our customers," said Richard Brekka, Gomez's chairman.

The deal is expected to close in November.

This was originally posted at ZDNet's Between the Lines.

Xerox said Monday it will buy Affiliated Computer Services in a cash and stock deal valued at $6.4 billion.

Xerox is valuing ACS at $63.11 a share, up from ACS' closing price of $47.50. The move transforms Xerox into a services company that can focus on business process management and outsourcing (statement).

The company, which is in a dogfight with Hewlett-Packard for print managed services, is apparently looking for more foot soldiers to cross sell everything from process overhauls to document management programs. After all, HP can use its EDS army to sell print managed services in addition to other items. ACS had $1 billion in recurring revenue during fiscal 2009.

For Ursula Burns, Xerox's CEO, the ACS deal is a defining moment that comes early in her tenure. In a statement, she said:

By combining Xerox's strengths in document technology with ACS's expertise in managing and automating work processes, we're creating a new class of solution provider.

Indeed, Xerox will have a $22 billion company with $17 billion in recurring revenue. When you combine the Xerox deal with Dell's purchase of Perot Systems last week you arrive at an easy conclusion: Everyone wants to be a services company.

ACS shareholders get $18.60 in cash and 4.935 Xerox shares for each share they own. Xerox picks up ACS' $2 billion debt. As for the synergies, Xerox said the deal is about growth:

Xerox is confident it will achieve significant incremental revenue growth by leveraging Xerox's strong global brand and established client relationships to scale ACS's business in Europe, Asia and South America. In addition, Xerox will integrate its intellectual property with ACS's services to create new solutions for end-to-end support of customers' work processes.

However, there will be some savings. Xerox said it will save $300 million to $400 million annually in the first three years once the deal closes. The savings are related to back office, procurement, and the costs related to running a public company.

The deal has been approved by the boards of Xerox and ACS and by an ACS special committee. It is expected to close in the first quarter of 2010.

This was originally posted at ZDNet's Between the Lines.

Dell's $3.9 billion acquisition of Perot Systems gives the company a better foothold in the IT services market, but it's really just the beginning. It's a down payment on the company's big plans to transform its business.

As noted earlier (statement, Techmeme), Dell is paying $30 per share for Perot Systems, which is heavily focused in the only two industries growing these days--health care and government. Perot and Dell had been long-time partners.

Dell had been talking about diversifying away from its core PC and server businesses for months, but the Perot purchase is the first move that illustrates the company is serious about its transformation.

CEO Michael Dell said on a conference call the Perot purchase is a platform that the company can use to acquire more companies. Dell specifically said it will look for more deals similar to its EqualLogic purchase. Dell also said that Dell and Perot would be able to grow faster combined. "We will leverage Perot's services capability across Dell's customer base," said Dell. "This acquisition makes great sense."

Indeed, Dell is certainly focused on making sure the Perot integration goes smoothly. Perot CEO Peter Altabef will head a services unit comprised of joint Perot-Dell services units.

And the two companies--both based in Texas, about 200 miles apart--hope proximity can make any integration smooth (even though about a third of Perot's employees are in India). Perot and Dell have partnerships for financing and targeting verticals like health care (48 percent of Perot's annual revenue) and government (25 percent of sales). Combining the companies was the best move to further the relationship, said Dell.

Officials said that Perot is one of the largest IT services providers to hospitals and physicians. President Obama has made health care IT a big focus to slow the rate of increasing costs.

However, there is an increased degree of difficulty for Dell. Perot has 23,000 employees. Altabef said he was "personally committed" to the deal and Michael Dell said that there is a good cultural fit between the two companies. That cultural fit--not to mention retention packages--will keep Perot talent on board, executives said.

Deal about growth
Dell CFO Brian Gladden noted that Perot "is a great anchor acquisition for Dell" and its platform can be applied to other industries.

Gladden said that "growth is the primary motivation for this transaction."

Aside from utilizing Perot's foothold in health care and government agencies, Dell said that the two companies can grow faster and build "next-generation capabilities."

Dell also added that Perot can enhance the company's ability to bring next-generation data center and virtualization capabilities to customers. Think of the deal as one big cross-selling proposition. Dell can leverage Perot's health care and government customers to sell more hardware. Perot, which only has 27 percent of its revenue tied to commercial accounts, gets Dell's enterprise heft.

The big question is whether Dell can take Perot's capabilities and extend them to other industries. If it can, Dell may succeed at delivering the growth it's hoping for.

In a graphic, Dell's big plan for Perot looks like this:

(Credit: Larry Dignan/ZDNet)

While Dell's plan for Perot Systems looks good on paper it will remain a small services player relative to rivals.

Dell said that it can bolt together Perot's services business with its own and create a global services company. However, today the Dell-Perot services business is an $8 billion unit. "We can make a different services company with a new set of capabilities," said Dell.

(Credit: Larry Dignan/ZDnet)

Dell will have to deliver new capabilities if it's to enter the big leagues in services. For instance, IBM's global technology services unit had $39.3 billion in revenue in 2008 with its global business services division delivering sales of $19.6 billion. As a result, IBM doesn't have to rely on its hardware business as much as Dell does.

It's a similar story for HP, which bulked up its services via the purchase of EDS. For the nine months ended July 31, HP's services revenue was $25.7 billion. Of that sum, infrastructure technology outsourcing and technology services represents the bulk of the revenue pie.

Dell's challenge: Scale Perot's services unit with "disruptively great value" so it can play catch-up to the big services guns.

(Credit: Larry Dignan/ZDNet)

Update 9:40 a.m. PDT: Added details of the movement of shares for Dell and for Perot Systems.

Dell announced Monday that it will buy IT services provider Perot Systems for $3.9 billion.

The two companies expect to provide a broad range of IT services and packages, expanding the global reach of Perot Systems and selling Dell computer systems to additional Perot customers. The move could be a shot in the arm for Dell, giving it a way to diversify beyond its bread-and-butter business of selling hardware.

"This significantly expands Dell's enterprise-solutions capabilities and makes Perot Systems' strengths available to even more customers around the world," said Dell CEO Michael Dell. "There will be efficiencies from combining the companies, but the acquisition makes such great sense because of the obvious ways our businesses complement each other."

Perot Systems, founded by one-time presidential candidate Ross Perot, provides IT services and business solutions to customers in health care, government, manufacturing, banking, and insurance. The company has built a large customer base in North America, Europe, the Middle East and Africa, and Asia.

"Today's announcement is the next step in formalizing a relationship that has flourished for some time," said Perot Chairman Ross Perot Jr. "When my father founded Perot Systems he envisioned a global information-technology leader. The new, larger Dell builds on that promise and its own successes by taking Perot Systems' expertise to more customers than ever."

Under the agreement, PC and server maker Dell will acquire all outstanding common stock of Perot Systems for $30 a share in cash, a 65 percent premium over Friday's closing price. Subject to the usual government approvals, the deal is expected to close in Dell's November-January fiscal quarter.

In Monday morning trading, Perot Systems' shares were up by essentially that same margin, to $29.60. Dell's shares were down about 4 percent to $15.92.

Once the deal is completed, Perot Systems will become Dell's services unit, headed by Peter Altabef, current Perot Systems CEO. Ross Perot Jr. is expected to be considered for a slot on Dell's board of directors.

Dell and Perot Systems have worked together in the past. In April, for instance, they teamed up to get in on the ground floor of electronic health records, a field that is expected to grow substantially in coming years as hospitals and physicians increasingly digitize patients' medical records. The companies also talked about the ability to run some medical applications in a hosted, "private cloud" offering to help make costs more manageable.

One of the largest computer makers in the world, Dell has been hit hard by the global recession as its business customers hold off on upgrading their banks of servers and arrays of desktop and laptop PCs. In its most recent quarter, Dell's earnings were down 23 percent year over year to $472 million, on revenue of $12.76 billion, also down just over 20 percent.

Dell and Perot Systems say that over the past four quarters they have taken in a combined $16 billion in enterprise hardware and IT services revenue, with about $8 billion from enhanced services and support.

Oracle is touting its alliance with Sun.

(Credit: Screenshot by Stephen Shankland/CNET)

Oracle isn't letting a pesky EU investigation stand in the way of its planned acquisition of Sun Microsystems.

Larry Ellison, the software giant's chief executive, is joining Sun's server chief, John Fowler, to show off some new Sun hardware running Oracle's software on Tuesday. The companies are touting their "partnership" with a jointly branded "Exadata" system shown in a Webcast invitation sent to press and published by both Oracle and Sun.

"You are invited to attend an exclusive webcast event where Oracle CEO Larry Ellison will unveil an innovative new product, the world's first OLTP (online transaction processing) database machine with Sun's brand new FlashFire technology," the invitation said. "Don't miss this opportunity to learn firsthand how the partnership between Oracle and Sun can benefit your business now and in the future."

Sun has been working on systems that take advantage of solid-state drives (SSDs), which use flash memory to store data rather than traditional hard drives with rotating platters that can store data in tiny magnetic patches. One advantage of such systems is that it's easier to retrieve data scattered in different locations over a drive, which can make reading and writing data faster. However, flash drives cost much more per gigabyte to store data than traditional hard drives.

Notable here is that Oracle is helping preserve the value of the asset it hopes to acquire. As Illuminata analyst Jonathan Eunice observes, Oracle is trying to counteract IBM and Hewlett-Packard programs to steal away Sun customers who might be hesitating over Sun's current limbo and its inevitable future changes.

Oracle is of course a software company, and one of its biggest challenges in acquiring Sun will be embracing hardware as well, even if it's in some subordinate role that mostly serves as a delivery vehicle for the software. Hardware still takes immense resources to design, qualify, test, manufacturer, and support to compete on the level of IBM and HP.

Tuesday's event telegraphs that Oracle does indeed care about Sun's hardware. So do marketing missives proclaiming that Oracle plans to spend more money developing both servers with Sparc processors and Sun's Solaris operating system than Sun does today.

Oracle doubtless is frustrated by the EU's intransigence, which centers on the open-source MySQL database software that competes with Oracle's own core database product. But it's doing the best it can to keep Sun's hardware business alive.

Deutsche Telekom could be weighing a multibillion dollar bid to buy Sprint Nextel within the next few weeks, said London's Daily Telegraph on Sunday. The German telecommunications giant has called on financial advisor Deutsche Bank to study a proposed deal.

As the parent of struggling T-Mobile, DT might see a takeover of Sprint as a way to revive its listless U.K. and U.S. operations. DT chief executive officer Rene Obermann has been unhappy with the performance of T-Mobile, blaming it for the parent's first-quarter loss of 1.1 billion euros ($1.46 billion) earlier this year.

Facing stiff competition for mobile customers, T-Mobile has struggled in the No. 4 spot behind Verizon Wireless, AT&T, and Sprint.

DT enjoyed a turnaround in the second quarter, taking in a profit of 521 million euros ($751 million). But T-Mobile's global operations have continued to drag, squeaking by through cost cuts rather than sales or customer gains.

Obermann's latest fix for the U.K. segment, announced last week, is a merger to join the British operations of T-Mobile UK and France Telecom's Orange. That marriage will create the U.K's biggest mobile provider.

Now T-Mobile U.S. may be next on the list. Complaining of structural problems with T-Mobile U.S., Obermann has sunk almost 1 billion each year to improve the U.S. network. But the investment has yet to pay off.

Reports of a possible DT takeover of Sprint first surfaced in May of 2008 but didn't go far at that time.

A deal that would merge T-Mobile U.S. and Sprint could create a mobile powerhouse. But analysts aren't sure Obermann can pull it off.

First, DT would need to figure out how to integrate three different types of wireless technologies, said Sanford Bernstein analyst Robin Bienenstock in a research report released Monday. After joining forces in 2005, Sprint and Nextel have faced headaches combining their two incompatible technologies. The situation could be worse for DT as it tries to assimilate T-Mobile's GSM, Sprint's CDMA, and Nextel's iDEN technologies.

Second, DT would need to cough up a lot of cash. To buy Sprint, which the Daily Telegraph said is valued at around $10.6 billion, DT would have to get a substantial injection of money from its shareholders, including the German government, which owns a 32 percent share of the company.

Despite the hurdles, the Sanford Bernstein report sees the deal as a positive, and not just for Deutsche Telekom. "For DT, an acquisition of Sprint may be the 'least bad' option," said the report. But "the U.S. wireless market is crying out for consolidation. In that context, the consolidation of a weak third and a nearly-as-weak fourth player in the market would be a welcome development...for everyone."