Oracle, HP, Intel, IBM Foresee a Boom in Tech Spending

USA Today

 

 

Acquisition fever at Oracle, Hewlett-Packard, Intel and IBM probably won't cool down anytime soon; not with corporations, big government and large organizations — the so-called enterprise sector — poised to spend trillions on the next generation of digital systems.

Tech research firm Gartner this week forecast that enterprises worldwide will spend $232 billon on software alone this year, up 4.5% from 2009.

Meanwhile, overall spending for hardware, software and IT services should hit $3.4 trillion this year and $3.5 trillion in 2011.

The tech giants are anticipating that enterprises will build out new, cutting-edge networks tuned to extract valuable insights from the massive caches of data they've amassed.

Growth will come to those organizations that productively use this new intelligence in near-real-time, on PCs, smartphones and mobile devices.

Intel CEO Paul Otellini used a descriptor for this movement at Intel's Developers Forum in San Francisco two weeks ago.

He called it "pervasive computing."

Otellini described a world where enterprises routinely access not just raw data, but valuable business intelligence applied to that data, "anywhere, any time and in any way," says Charles King, principal analyst at Pund-IT.

Oracle, Intel, IBM and HP are in the race to assemble lower-cost, more streamlined hardware and software components that mesh well and can deliver business intelligence in near-real-time.

The tech rivals are striving to "integrate and control the correct pieces" and be the most successful at "providing functionalities that work in concert, so that it's like a symphony," says Mike Workman, CEO of data storage company Pillar Data Systems.

The projected beneficiaries: airlines, utilities, health care companies, retailers or any business in possession of lots of data.

IBM on Monday announced that it is buying business intelligence software and hardware maker Netezza for $1.7 billion.

That follows HP's acquisition of storage company 3Par and tech-security firm ArcSight; Intel's acquisition of anti-virus supplier McAfee and the wireless division of German tech company Infineon; and Oracle's six acquisitions this year, including swallowing up Sun Microsystems.

"IBM's acquisition of Netezza is yet another validation of just how important advanced analytics is in the business world right now," says Barry Zane, chief technical officer of business intelligence software maker ParAccel. "There is no question the industry is hot right now."

More buyouts of smaller tech companies developing cutting-edge storage and security systems and innovative business-intelligence applications seem likely as the tech giants pursue the winning blueprint, says Jack Gold, principal analyst at J. Gold Associates.

"The ability to store all business applications and data centrally and to make it all available to users is a very powerful paradigm shift," Gold says. "It requires cheap and fast networks."

Workman gives database giant Oracle, and its new Exadata line of storage servers, the early lead.

Oracle juiced up Exadata by integrating its flagship database software into Sun's high-end computer servers, he says.

IBM's acquisition of Netezza, supplier of technology that competes directly against Exadata, came as no surprise to Workman.

Intel and HP likewise remain in shopping mode as they try to "integrate various systems to arrive at a solution that will kick the other guy's butt," Workman says.

BlackBerry Gets Squeezed by Rivals

The Wall Street Journal

 

BlackBerry maker Research In Motion Ltd. posted a surge in quarterly profit and revenue, though it added fewer new subscribers than it had expected amid intensifying competition in the U.S.

RIM said it shipped 12.1 million devices to wireless carriers and stores in its fiscal second quarter, up 45% from a year ago. But the company added 4.5 million net new BlackBerry subscribers in the quarter, down from 4.9 million in the preceding quarter. It had expected to add between 4.9 million to 5.2 million accounts in the period.

Co-CEO Jim Balsillie said subscriber growth initially was hurt by competing products entering the market during the summer and by weakness in Middle East markets due to concerns local service could be interrupted due to disputes with governments over security issues.

Mr. Balsillie said RIM remains in discussions with India and the United Arab Emirates to resolve concerns about their inability to monitor encrypted communication over BlackBerrys and is optimistic about a positive resolution.

The Canadian company has long held sway over the corporate market for smartphones. But it is falling behind Apple Inc. and makers of devices based on Google Inc. software in the race to sell high-end phones to consumers. Apple launched its iPhone 4 on June 24, and Verizon Wireless rolled out updates to its Droid line this summer.

RIM launched the Torch, which has a touchsreen and slide-out keypad, with just over two weeks remaining in the quarter, which ended Aug. 28. Mr. Balsillie said the launch was the most successful in the company's history, but he didn't disclose how many units sold.

Analysts have warned that initial sales have been weak. RIM said it expects stronger sales and subscriber gains in the third quarter, when the Torch, which launched exclusively with AT&T Inc., will hit more markets.

Mr. Balsillie said subscriber additions were particularly soft early in the second quarter but strengthened following the release of the Torch and remained stronger in the current quarter.

RIM, however, said it will stop forecasting subscriber additions or disclosing its average selling prices after December—two closely watched gauges of its business.

RIM's failure to keep up with the iPhone and Android devices in the consumer market is starting to erode its hold on business customers, as employees press their companies to let them use their personal devices at work. Over the past year, Apple and Google have been upgrading their software to attract corporate clients.

Research firm IDC expects BlackBerry to lose business market share for the first time this year. IDC forecasts that BlackBerry world-wide will drop to 36.4% from 39.9% last year. Meanwhile, Apple's iPhone is expected to rise to 8.7% from 8%, Android is expected to increase to 1.1% from 0.4%, and Microsoft Corp.'s Windows will jump to 27.8% from 25.6%.

"RIM is under a significant threat, and we now expect the contribution to earnings of the corporate segment to shrink going foward," wrote Sanford Bernstein analyst Pierre Ferragu, which surveyed companies and found nearly three-quarters are preparing to support non-BlackBerry devices.

Staying competitive may require price cuts. In February, RIM released a free version of its enterprise server for small and medium sized businesses. The software only works with Microsoft email software and supports up to 2,000 users with a separate computer server and limited ability to monitor and control phone usage.

Alex Yanez, telecommunications engineer at retailer Patagonia Inc., said RIM has also been cutting its prices of the standard BlackBerry server and software. "The server license and the seat license has come down quite a bit," said Mr. Yanez. Prices "have come down very much."

A RIM spokeswoman wouldn't comment on price cuts.

Opera Gets Sales Boost as Carriers Target Apple, Nokia Services

Bloomberg

Opera Software ASA sees operators such as Vodafone Group Plc bringing in more revenue as carriers seek to wrest a piece of the $226 billion market for mobile services away from Apple Inc., Google Inc. and Nokia Oyj.

The Norwegian maker of desktop and mobile-phone Web browsers is building service platforms with 12 of the world’s 30 biggest carriers, including AT&T Inc. and Vodafone, Chief Executive Officer Lars Boilesen, 43, said in an interview.

“There’s a battle going on between the brand manufacturers and the operators, and we may be betting a little more on the operators,” Boilesen said. “We’re going for all of them.”

Apple, Google and Nokia have built software and media download shops to capture customers’ cash and loyalty, frustrating operators who want to expand services beyond ringtones and screen wallpapers. Some operators are using Opera’s software to fight back as new mobile broadband networks in countries such as Russia and India make it easier for customers to load their phones with extras.

Phone companies use the Opera Mini browser to present content and applications on cheaper handsets, paying the Oslo- based company between 1 euro ($1.31) and 3 euros per active user a year, Boilesen said. Operators generated more than 30 percent of Opera’s 168.9 million kroner ($27.7 million) in sales in the second quarter and are set to increase.

The Opera Mini versions developed with carriers have grown from almost no users at the start of the year to 5.2 million revenue-generating users at midyear, according to the company.

‘Cup of Tea’

Vodafone turned to Opera to get customers in Egypt, South Africa and Turkey to use e-mail and look at job advertisements. Compression technology lets the browsers run fast on older devices and 2G networks.

“Opera provides full Internet access to a customer whose mobile phone may be his only access to the Internet,” said Jonathan Bill, head of markets for Vodafone Internet Services. The cost is “typically the price of a cup of tea in whatever market we’re in.”

The global mobile value-added service market is set to grow to $340 billion in 2014 from $200 billion last year and $226 billion this year, led by China, India and Indonesia, according to a July report from researcher Informa Telecoms & Media. The figures include revenue to handset vendors and other content providers for services accessed over mobile networks.

Convincing Operators

“The operator needs to be convinced the incremental revenue will be more than they’re paying Opera,” said Peder Strand, an Oslo-based analyst at SEB Enskilda Bank, who has a “buy” recommendation on Opera.

Spun off in 1994 from Telenor ASA, the Nordic region’s largest phone company, Opera sold shares in 2004. The stock has risen 36 percent this year, giving the company a market value of 3.26 billion kroner.

The biggest markets for Opera Mini are Russia, where it works with Mobile Telesystems OJSC, OAO MegaFon and Tele2 AB; India, where it partners with Virgin Mobile, Vodafone and Tata Communications Ltd.; and Indonesia, where it works with Telekomunikasi Selular PT. It’s also working with Millicom International Cellular SA’s Tigo brand in Latin America.

Taiwan’s MediaTek Inc., maker of one of the fastest-growing low-end phone platforms, has begun loading Opera onto its chipsets, which gets it onto handsets from new vendors such as India’s Micromax Informatics Ltd.

Opera’s Edge

Although Opera browsers can be used with higher-end smartphones, its edge comes from working on basic phones, which account for a majority of emerging markets devices. As bandwidth increases and more smartphones are sold, Opera may see its opportunities shrink.

“They seem to be the best choice for low-bandwidth countries,” said Andre Adolfsen, an Oslo-based analyst at Nordea Markets. “When improved bandwidth and smartphones penetrate these markets as well I believe Opera will struggle to compete with major original equipment makers such as Google, Apple, Microsoft and maybe Nokia.”

Nokia, which still works with Opera, is equipping its own mobile phone browser with compression technology from Novarra, which it acquired earlier this year. It’s also got joint applications stores with China Mobile and with Orange in the U.K. and France.

Enskilda’s Strand sees license revenue from phone companies as a better bet than customizing software for handset makers. “We expect significant pickup in profits over the next year,” he said.

U.S. Tech Probe Nears End

The Wall Street Journal

Several of the U.S.'s largest technology companies are in advanced talks with the Justice Department to avoid a court battle over whether they colluded to hold down wages by agreeing not to poach each other's employees.

The companies, which include Google Inc., Apple Inc., Intel Corp., Adobe Systems Inc., Intuit Inc. and Walt Disney Co. unit Pixar Animation, are in the final stages of negotiations with the government, according to people familiar with the matter.

The talks are still fluid, these people said, with some companies more willing to settle to avoid an antitrust case than others. If negotiations falter, both sides could be headed for a defining court battle that could help decide the legality of such arrangements throughout the U.S. economy.

Still, there are powerful incentives for both sides to settle the potential civil case before it reaches that stage.

The Justice Department would have to convince a court not just that such accords existed, but that workers had suffered significant harm as a result.

The companies may not want to take a chance in court. If the government wins, it could open the floodgates for private claimants, even a class action by employees. A settlement would allow the Justice Department to halt the practice, without the companies having to admit to any legal violations.

Spokespeople for Google, Apple, Intel, Adobe and Intuit all declined to comment. Pixar had no immediate comment. A Justice Department spokeswoman also declined to comment.

The Justice Department's probe of hiring practices could reach beyond Silicon Valley.

During the course of its more than year-long investigation, the agency has uncovered evidence of such agreements in other sectors, according to the people familiar with the matter.

A settlement with tech companies—or a court fight—could therefore help determine what kinds of agreements are acceptable in other industries as well.

At stake are dueling visions of how far companies should be able to go in agreeing to limit the kind of headhunting that can help valuable employees increase their compensation.

The companies have argued to the government that there's nothing anticompetitive about the no-poaching agreements. They say they must be able to offer each other assurances that they won't lure away each others' star employees if they are to collaborate on key innovations that ultimately benefit the consumer such as improved Google SEO.

Some economists believe that banning such agreements could harm Silicon Valley's open, collaborative model.

"The effect of the lawsuit would be to reduce innovation because companies would worry about exposing their employees to each other," said Paul Rubin, an economics professor at Emory University, who isn't involved in the case.

For the Justice Department, such agreements amount to an effort by companies to limit competition for talent, harming employees' ability to get the best jobs and wages and reducing the incentives for people to enter professions in high demand, according to people familiar with the matter.

The government could argue that the agreements constitute an effort by companies to fix the price of labor, and are therefore just as harmful as price-fixing or bid-rigging—automatic violations of antitrust law.

"In a free market economy, you want the best people getting the best positions, and presumably all the rewards that come with that," said Spencer Waller, a law professor at Loyola University Chicago, who has no connection to the case. "This agreement, if the government has the facts, suggests that market for talent is being depressed by collusion."

The agreements under investigation varied in their scope and details, according to the people familiar with the matter. In conversations with the Justice Department, some companies have maintained they didn't have agreements not to hire each others' employees, only agreements not to "cold-call" partners' employees.

However, people familiar with the matter say the Justice Department believes that cold-calling is an important way in which people are hired in the sector. Even if the employees don't end up moving, their employer often has to sweeten their pay and conditions to make sure they stay.

After more than a year of investigation, the Justice Department antitrust division has concluded that many of these agreements have harmed people's ability to get better jobs or improve their conditions.

But proving that in court may be tricky, some antitrust lawyers said.

During the course of the investigation, more than a dozen tech companies have been questioned by the Justice Department, people familiar with the matter said. Those include Yahoo Inc., Genentech Inc. and IAC/InterActiveCorp.

However, some companies said they are no longer in the government's cross-hairs. "After a thorough investigation, the [Justice Department] antitrust division has advised IBM that it will not pursue a case against IBM," an International Business Machines Corp. spokesman said.

Microsoft Corp. also said it is no longer a target of the investigation. A Genentech spokeswoman said the Justice Deparment had relieved the biotech firm of the obligation to hold on to relevant information.

A Yahoo spokeswoman said the company fully cooperated in the investigation and believed its responses were sufficient. IAC didn't respond to requests for comment.

The agency has decided not to pursue charges against companies that had what it believes were legitimate reasons for agreeing not to poach each other's employees, said people familiar with the matter. Instead, it's focusing on cases in which it believes the non-solicit agreement extended well beyond the scope of any collaboration.

RIM Short Interest Doubles as BlackBerry Loses Ground to IPhone

Bloomberg

 

Bets against shares of Research In Motion Ltd. have doubled since April as investors wager the BlackBerry maker’s stock will continue to decline in the face of competition from Apple Inc. and Google Inc.

Short interest in RIM climbed to 31.1 million shares as of Aug. 31, more than double the level on Apr. 15 and the most since June 2007, according to data compiled by Bloomberg. Investors taking short positions borrow and sell a stock, aiming to profit by repaying the borrowed shares at a lower price.

“Everybody is so negative, the short positions continue to grow,” said Buzzy Geduld, chief executive officer of New York hedge fund Cougar Trading. He said he may short or buy the stock after the company’s earnings report today and doesn’t own shares at the moment.

Best known for handsets equipped with a full keyboard, RIM has struggled to create touch-screen devices that can compete with Apple’s iPhone and phones like Motorola Inc.’s Droid that use Google’s Android software. The BlackBerry Torch, a touch- screen model that went on sale last month, has received mixed reviews and generated what analysts say are lukewarm sales.

At the same time, the Waterloo, Ontario-based company faces challenges as it expands in overseas markets and the potential loss of business in its traditional corporate base. Countries such as India and the United Arab Emirates have threatened to ban BlackBerry services over security concerns.

Revenue, Profit Growing

Of 200 companies polled in the U.S. and U.K., 74 percent now let employees use devices other than BlackBerrys, according to an August survey by Sanford C. Bernstein & Co. JPMorgan Chase & Co., the second-largest U.S. bank by assets, may soon let employees use iPhones or Android phones for corporate e-mail, in place of the BlackBerry, for the first time, two people familiar with the situation said last week.

The stock has dropped 31 percent this year on the Nasdaq Stock Market as Apple has climbed by that percentage. RIM rose 97 cents to $46.49 at 4 p.m. New York time.

Marisa Conway, a spokeswoman for RIM, didn’t respond to messages seeking comment.

RIM is still boosting revenue and profit as mobile-phone buyers increasingly shift to smartphones that can surf the Web and play videos and music. When the company reports results for the latest quarter today after the close of regular trading, revenue is likely to jump 27 percent to $4.49 billion while net income surges 58 percent to $753 million, according to average estimates from analysts surveyed by Bloomberg.

‘Losing Mind Share’

Growth in the U.S. is slowing and the company is losing market share globally. RIM’s portion of the worldwide smartphone market slid to 18.2 percent in the second quarter from 19 percent a year earlier as customers opted for devices with larger screens and more applications, according to researcher IDC. Apple’s share rose to 14.2 percent from 13 percent, while Android surged to 17.2 percent from 1.8 percent.

“It feels like RIM is not in touch with what demanding, tech-savvy customers want,” said Nirav Parikh, senior vice president at Los Angeles-based TCW Inc., which manages $110 billion and sold all of its remaining 866,749 RIM shares as of June 30, according to a securities filing.

“They are losing mind share,” he said. “Their international growth is great, however those markets in the next couple of years may follow trends in the U.S., which don’t bode as well for RIM,” said Parikh.

Analyst Downgrades

While 31 of 54 RIM analysts recommend buying the shares, five analysts have downgraded the stock over the past quarter and nine now recommend selling. Among the RIM bears is Goldman Sachs Group Inc.’s Simona Jankowski, who cut her rating on the stock to “sell” in April and says the Torch didn’t do enough to change her mind.

“They really needed a very high-profile, very successful launch that was a really big hit,” Jankowski said. “That’s how high the bar was and they just didn’t clear it.”

Cougar Trading’s Geduld said he’s waiting to hear the company’s earnings news before deciding how to invest.

“I don’t think it’s quite a short and I don’t think it’s yet a long,” he said. “The real question is what are they going to say about the future.”

Motorola's Tablet will Miss the Holidays

The Wall Street Journal

 

Motorola Inc. aims to deliver a tablet computer early next year, a move that will extend its products beyond cellphones but after the key holiday selling season.

"We want to make sure that any tablet that we deliver is competitive in the marketplace, and I think all of us will make sure that we will only deliver that when that occurs," Co-Chief Executive Sanjay Jha said late Wednesday at an investor conference. "Hopefully, that's early next year."

Apple Inc.'s success with its new iPad have made tablets a must-have offering for gadget makers. Samsung Electronics Co. is expected to unveil its seven-inch Galaxy Tab to the U.S. market at an event Thursday in New York City. Dell Inc. has recently launched a tablet in the U.S., and others are expected ahead of the holidays.

Mr. Jha has tried to turn around Motorola's troubled cellphone business by refocusing it on smartphones powered by Google Inc.'s Android operating system.

Google has made clear it doesn't think the latest version of Android, called Froyo, is appropriate for tablet devices, Mr. Jha said Wednesday, adding that he wouldn't roll out a tablet until the technology is ready.

Mr. Jha said he's eager to get into the tablet business, but also indicated he is thinking more broadly about new forms of mobile computing, hinting that he is interested in models that are "even more smartphone-centric."

H-P to Buy ArcSight for $1.5 Billion

The Wall Street Journal

 

Hewlett-Packard Co. agreed to buy security-software maker ArcSight Inc. for about $1.5 billion, continuing the company's spending spree that began after Chief Executive Mark Hurd resigned last month.

The deal also represents the latest purchase of a smaller security firm by a huge technology company, a trend some see continuing as big tech considers the importance of adding security to their product portfolio. ArcSight makes software that monitors corporate networks for unusual activity, such as a hacker's attempt to break into a system.

ArcSight shares ended Monday trading up 25.1% at $43.91 on the Nasdaq, above H-P's offer price of $43.50 a share, suggesting some traders may be expecting or hoping for a higher bid, similar to what happened with storage maker 3PAR Inc. last month. ArcSight, of Cupertino, Calif., had been quietly shopping itself to a handful of big technology companies, and the agreed-upon deal provides a 24% premium to ArcSight's closing price Friday and a 70% premium to where it was trading a month ago.

On a conference call with investors, H-P executives declined to comment about the bidding process for ArcSight. They also wouldn't speculate about what would have happened if Mr. Hurd remained CEO.

H-P expects the acquisition to close by the end of the calendar year and doesn't see any material earnings dilution in its next fiscal year. The company is in the fourth quarter of its fiscal 2010 year. H-P shares, down 26% so far this year, added 2 cents to reach $38.22 in recent trading.

"The combination of H-P and ArcSight will provide clients with the ability to fortify their applications, proactively monitor events and respond to threats," said Bill Veghte, H-P's executive vice president of software and solutions.

The ArcSight deal continues H-P's push into software and other areas outside of its core computer-hardware businesses that began under Mr. Hurd. Software, networking, storage and services—all areas in which H-P has expanded recently—have higher margins than the company's core personal-computer and server-system businesses. H-P executives have said repeatedly that the company will continue the expansion strategy.

Mr. Veghte reiterated that sentiment Monday, saying H-P has "a very clear and good M&A strategy" that's unchanged since Mr. Hurd's departure.

"The company continues to make acquisitions where they make strategic operational and financial sense," Mr. Veghte said.

The deal for ArcSight is the latest episode in a month-long drama starring H-P. Last month, Mr. Hurd resigned following violations of the Palo Alto, Calif., company's code of business conduct, and he later joined H-P rival Oracle Corp. as co-president. Shortly following Mr. Hurd's departure, H-P launched a bidding war with Dell Inc. for 3PAR, eventually winning with a bid of $2.35 billion, almost double the amount Dell had initially agreed to pay.

Investors have been concerned about H-P's strategy—including the high premiums it's paying for acquisitions—since Mr. Hurd left the company.

"While such an acquisition would fit into the company's overall enterprise strategy, we believe Street sentiment would likely rather see the company get a new CEO announcement behind them and look to digest some of the acquisitions it has recently or will be completing (i.e., 3Com, Palm, 3PAR)," Stifel Nicolaus analyst Aaron C. Rakers said in a research note Monday.

Others noted the deal continues a wave of consolidation in the information technology sector. Last month, chip maker Intel Corp. offered to buy security specialist McAfee Inc. for $7.7 billion.

Security companies have attracted interest from larger information-technology providers lately as the industry's biggest companies look to offer a wider variety of products and give customers an end-to-end solution. Software that helps companies manage data securely is especially in demand.

H-P's Mr. Veghte said on a conference call that customers are not only looking for software products but also for services and hardware around the software to "deliver coherent solutions." He said H-P's acquisition of ArcSight will allow it to provide its enterprise clients with "holistic and proactive" solutions to manage their security risks and stay compliant with regulations at lower costs.

Meanwhile, Jefferies analyst Katherine Egbert noted seven other security companies that could attract interest from larger tech companies. They were: Sourcefire Inc., Fortinet Inc., Vasco Data Security International Inc., Symantec Corp., Check Point Software Technologies Ltd., Blue Coat Systems Inc. and Websense Inc.

The analyst added, though, "we do not believe any of these vendors are an active target right now."

Vasco and Check Point declined to comment, while representatives from Sourcefire, Fortinet, Blue Coat and Websense weren't immediately available to comment.