Corporate Moves and Outcomes

IBM Corp. announced decent third quarter financials and a new CEO. In other financial news, BMC Software Inc. and Microsoft Corp., reported their quarterly earnings. Meanwhile, Oracle Corp. made two acquisitions to assist in its move into the cloud while, on a more general cloud note, Workday Inc. closed a new round of financing, putting its overall valuation at $2 billion.

Focal Points:

• IBM reported third-quarter revenues of $26.2 billion, up eight percent from a year ago. On a non-GAAP basis, net earnings for the quarter were $3.8 billion, an increase of six percent. Software revenues grew 13 percent year-over-year while hardware revenues expanded by four percent and the services units, Global Technology Services and Global Business Services, gained by nine and six percent respectively. IBM pointed out that its biggest gainers were a 52 percent spurt in WebSphere family software revenues, a 15 percent jump in Power Systems revenues and a 19 percent expansion of revenues in the growth regional markets, which includes the BRIC nations. The only negative news was a five percent decline in System z revenues over the previous year's quarter, which was the first full quarter for zEnterprise sales. In addition, IBM's Netezza sales were up 36 percent from a year ago, when it first acquired the firm. In other news, IBM announced that Virginia "Ginni" Rometty, currently head of global sales, will replace Sam Palmisano as CEO at the start of the new year. In the nine years under Palmisano's leadership IBM's stock has matched Oracle's, according to Thomson Reuters data.
• BMC announced it had second quarter revenues of $557 million, an increase of 10.8 percent from the same period last year. On a GAAP basis, net earnings were $115 million, a 13 percent drop from the $132 million it earned in the previous year's quarter. Also in the quarter over quarter comparisons total bookings declined 16 percent and license bookings fell 15 percent. However, over the half year, both bookings were up. Due to the mixed results company officials have lowered their full year expectations. Meanwhile, Microsoft announced record first-quarter revenue of $17.37 billion, a seven percent increase year-over-year. Net income was $5.74 billion, a six percent improvement from the previous year's quarter. Microsoft's largest division, Microsoft Business Division, reported $5.62 billion in first quarter revenues, an eight percent increase from the prior year period while the Windows and Windows Live Division revenues were $4.87 billion, a mere two percent increase over the prior period. The Server & Tools segment posted $4.25 billion in first quarter revenues, a 10 percent increase over the prior year period, but its net operating incomes were not as robust as the other divisions. However, the Online Services Division, which houses its Bing Web search business, continues to hemorrhage cash. The division posted a $494 million operating loss, which was an improvement from its $558 million operating loss in the year-earlier period.
• Oracle released word that it is acquiring RightNow Technologies Inc., a software as a service (SaaS) customer service company, for $1.5 billion and Endeca Technologies Inc., an unstructured data software and business intelligence provider, for an undisclosed amount.  RightNow is headquartered in Bozeman, MT and has more than 1,000 employees worldwide. There are approximately 2,000 organizations that use its SaaS services. Oracle claims the acquisition will enable it to deliver a more complete B2B and B2C customer experience. Moreover, Oracle executives stated that Oracle is "moving aggressively to offer customers a full range of Cloud Solutions including sales force automation, human resources, talent management, social networking, databases and Java as part of the Oracle Public Cloud." Oracle's Endeca acquisition helps the company pursue unstructured content management, using its MDEX Engine. The company plans to take Endeca's technology and combine it with its ATG Commerce offering. Endeca is headquartered in Cambridge, MA and has more than 600 customers relying on its solutions. In other cloud news, Workday, the fast-growing human resources SaaS provider raised $85 million in new financing, bringing its total amount of capital raised to $250 million and setting its overall valuation at $2 billion. Workday is viewed as providing the next generation of PeopleSoft software. It has more than 250 customers, with an average of 10,000 to 15,000 employees each. More than two million employees use the system.

Experton Group believes the major vendors like EMC Corp., IBM, Microsoft and Oracle will continue to do well globally while expanding to fill in gaps. IT executive should expect each of them to push heavily into private and public cloud offerings and services. IBM has a vision of its markets through 2015 that it is executing against effectively. The passing of the baton to a long-time IBM executive will not change the vision and, given Ms. Rometty's current role, will enable the company to keep on driving on all cylinders. Microsoft is doing well in its core businesses but the slowdown of the PC market has impaired its Windows sales. If this becomes a long-term trend (a possibility) as the end-user device market is in flux, and if the company's cloud strategy fails to succeed, then one of Microsoft's cash cows will start drying up. In that the company has not articulated its vision, the company may be in for some tough times ahead. Meanwhile, the company's Bing search engine business has lost billions over the past few years and no end is yet in sight. CEO Ballmer claims to have a vision where Bing is embedded into other products, which he says will turn it all around, but Microsoft has not proven itself yet on its execution efforts on strategies of this sort. IT executives need to watch this space. BMC is experiencing mixed results and is therefore refocusing its efforts in order to get back on track. IT executives should view management's concern on bookings growth as an opportunity to negotiate better deals, which could include additional products and services at reduced license and maintenance fees and service rates. Oracle will need to port the MDEX Engine to its platforms and integrate it with its other offerings. This could take a while but will not impair its hype engine. Furthermore, Oracle has now fully embraced the cloud and is pursuing it as aggressively as it has every other market. It has Salesforce.com Inc. and other cloud computing providers in its crosshairs as competitive targets or acquisitions. IT executives planning on using public clouds or cloud services should keep in mind that most of the providers are fair game for acquisition. Therefore, as part of any strategy, IT executive need to have a backup plan in case a favored supplier is acquired and there is a need to terminate the service and find a new service provider.