Top 10 computer industry mergers and acquisitions of 2006, part 1

Every computer industry acquisition or merger affects the channel, whether reducing competition or accelerating development; from networking to storage to security, here are the top mashups of 2006.

The past year saw a number of multi-billion dollar deals go down with importance to the channel.

In areas ranging from storage to security -- and, in one case, storage and security -- big deals made resellers and integrators take notice. Some transactions involved consolidation among service providers, while others involved key technology partners.

Channel players watch the combinations carefully.

Navigating a changing market
Top 10 Mergers in 2006; Part 2: Mergers 6-10

Merger madness: What to do when your infosec vendor gets acquired
 

RSA Security acquired by EMC for $2.1 billion

EMC acquires ProActivity, Captiva,  nLayers

"When mergers happen between big vendors, the best transitions are those that don't leave resellers dealing with all new personnel, or with sweeping changes in channel programs," said David Singer, vice president of marketing at Westwood Computer Corp., a Springfield, N.J. solution provider. Westwood, itself, is in the midst of a merger with another solution provider, Trenton, N.J.-based Emtec Inc.

Read on for the top deals of 2006:

1. Alactel/Lucent -- Telecom integration

  • Specialties: Telecommunications equipment and services
  • Reason for merger: Market size (combined revenue: $25 billion), and to combine two leading providers of advanced technology for voice, data, image and wireless IP networking.
  • Cost: $11.6 billion
  • Reason the channel should care: Voice/video/data wired and wireless networking is exploding; Alcatel-Lucent is a leading developer of the enabling technology.

    Alcatel SA and Lucent Technologies Inc. started doing business Dec. 1 as Alcatel-Lucent in the wake of a merger transaction valued at $11.6 billion.

    The combined entity plans to have a significant presence in IT services. That orientation stems in part from Lucent's Worldwide Services unit, which provided network integration and managed services. At Alcatel-Lucent, one of the new company's five business groups is devoted to services. Pat Russo, the company's chief executive officer, said the Service Business Group offers services in support of the four product groups and also independently of the product business.

    Both Alcatel and Lucent counted carriers among their top customers, but the combined company plans to ramp up its role in the enterprise space. "We should expect to see this company intensify its focus on the enterprise" and vertical markets, Russo said during a recent press briefing.

    In the enterprise sector, Alcatel-Lucent pursues IP telephony, call centers and managed communications services. The enterprise thrust will likely involve channel partners. The Alcatel side, for example, has a history of working with partners in the enterprise market.

    2. CDW/Berbee -- Distribution Marries integration

  • Specialties: Distribution/services
  • Reason for merger: With almost zero overlap in capabilities, each fills in the half of the design-implementation-operation picture the other lacked.
  • Cost: $184 million
  • Reason the channel should care:

    Distributors who can not only sell, but service, are the wave of the near future, though it's not clear how the entry of CDW, Ingram Micro, Tech Data and others will change the competitive landscape.

    CDW Corp. aims to substantially increase its solutions and project-based business following its acquisition of Berbee Information Networks Corp.

    CDW completed the $184 million purchase in October, though Berbee, a Madison, Wis.-based company that focuses on such areas as network infrastructure, collaboration solutions and application development, continues to operate as a separate business unit.

    That business could eventually approach $1 billion if the companies make good on their expansion plan. CDW seeks to double Berbee's revenue over the next five years, according to statements from company execs. Berbee's revenue was $390 million for the 12 months ending July 31.

    That growth will stem from the ability "to do more things for customers," according to Paul Shain, Berbee's chief executive officer. In past years, Berbee's role in a project would stop after it designed a solution and provided the core architecture. Now, it can call on CDW to handle the staging and configuration services, procurement and drop shipping, he said.

    Organic expansion may be augmented through acquisitions. The objective is to build "a national platform off of the Berbee foundation," Shain said.

    Berbee, meanwhile, also plans to boost CDW's role in the managed services market. Berbee operates a hosting and managed services operation from two data centers. The company's services include hosted Microsoft Exchange and SharePoint applications and infrastructure monitoring.

    3. Cisco/Scientific Atlanta -- Making home video part of the network

  • Specialties: Networking hardware/set-top cable boxes
  • Reason for merger: To expand Cisco's multimedia networking ability and provide entry to the home networking market.
  • Cost: $6.9 billion
  • Reason the channel should care: Multimedia networking is among the hottest-selling technologies at Cisco -- one of the hottest companies handled by the channel.

    Cisco Systems Inc. patched a weak link in its product set in February when it completed its purchase of Scientific Atlanta.

    The $6.9 billion transaction, among Cisco's largest, provides technology for running video networks. At a press conference following the acquisition, Dan Scheinman, Cisco's senior vice president of corporate development, called video "the weakest part of our multimedia portfolio."

    Scientific Atlanta, which dominates the market for cable set-top boxes -- along with Motorola Inc. -- also gives Cisco another sophisticated networking platform in the home. In 2003 Cisco paid $500 million for home-networking leader Linksys; earlier this year it bought Kiss Technology, a European company that makes network-ready DVD players.

    Cisco executives have also talked about the multimedia-networking potential of a connection between products from Scientific Atlanta and its Linksys division.

    On a purely marketing plane, Linksys provides a ready-made channel for Scientific Atlanta products through Linksys authorized distributors, which include D&H Distributing Co., Ingram Micro and Tech Data.

    An Ingram Micro spokesman said the company has yet to see any evidence of Cisco tapping the Linksys channel as a means for selling Scientific Atlanta products. He added, however, that employing the Linksys channel in that way has potential.

    4. EDS/MphasiS -- Adding to offshoring

  • Specialties: Global IT services /consulting business-process-outsourcing
  • Reason for merger: To expand EDS' Indian offshoring business.
  • Cost: $380 million in 2006for 52% ownership; approximately $150 million for another 20% in 2007
  • Reason the channel should care:

    With segments of the offshore outsourcing market growing as much as 33% per year and IDC predicting almost $30 billion in offshore spending by 2010, offshore IT services are growing far faster than the celebrated but comparatively tame domestic market for IT services.

    Electronic Data Systems Corp.'s acquisition of a majority stake MphasiS BFL Ltd. put its India strategy in overdrive.

    In one fell swoop, the company more than tripled its personnel in India, boosting its offshore capability and keeping pace with its outsourcing rivals. EDS employed 3,000 people in India prior to the purchase. MphasiS, based in Bangalore, provided more than 11,000 India-based employees in such fields as applications development and business process outsourcing.

    "The acquisition of the MphasiS company allowed us to quickly have a significant presence," said Ron Rittenmeyer, EDS' chief operating officer. Speaking at the Credit Suisse Annual Technology Conference, Rittenmeyer said EDS' Indian operation will be folded into MphasiS and operated under the EDS/MphasiS brand.

    EDS and MphasiS will ramp up their focus in key industries such as financial services, healthcare and manufacturing, according to EDS. EDS in October announced an open offer to acquire an additional 20% of MphasiS. In June, EDS acquired a 52% stake in the company.

    Ben Trowbridge, managing partner at outsourcing advisory firm Alsbridge, cited the EDS/MphasiS deals as among the notable transactions in the outsourcing sector this year.

    Also notable were the deals that didn't happen: Affiliated Computer Services and Computer Sciences Corp., he said, were in sales discussions in 2006, although no deal was consummated.

    5. EMC/RSA -- Storage, now with security

  • Specialties: Storage/security
  • Reason for merger: Holding data is one thing; keeping it safe is another.
  • Cost: $2.1 billion

  • Reason the channel should care:

    With acquisitions in virtualization and security, EMC -- which has a stormy history with the channel -- is making itself more of a force in the market for data center products and services.

    EMC Corp. $2.1 billion acquisition of RSA Security Inc. plugs what some observers view as a major gap in storage technology.

    The deal, which closed in September, brings together EMC's enterprise storage focus with RSA's encryption, identity management and other security wares. RSA provides the foundation for EMC's security division, which runs under the RSA brand.

    While security traditionally has been an afterthought in many storage settings, the task of "tying down security in a storage environment is becoming a bigger and bigger priority," according to Jim Damoulakis, chief technology officer of GlassHouse Technologies Inc., which specializes in storage.

    Damoulakis called EMC's RSA purchase a "very positive move" since it permits, over time, the integration of security and security management functionality into the fundamental storage management environment. I think it was a smart move on their part to go ahead and do this [acquisition]," he added.

    On the heels of the RSA acquisition, EMC purchased Network Intelligence. That company, which has been added to EMC's security division, provides products that capture log files from security applications and storage devices, among other sources.

    The RSA deal isn't the first time EMC has sought to enter markets via acquisition. In early 2004, EMC bought VMware to establish itself in server virtualization.

    Click here for the rest of the list.

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