Network Engines (NEI)

[blueskywaves]

Speaking of consolidation in the software industry, Oracle (TTM sales of $9.42B) just made a bid for PeopleSoft (TTM sales of $1.93B), which just made a bid for JD Edwards (TTM sales of $886M) earlier in the week.


Oracle bid set to shake up software industry
Friday June 6, 3:39 pm ET
By Reed Stevenson
Reuters

SEATTLE, June 6 (Reuters) - Oracle Corp.'s bid to buy rival software maker PeopleSoft Inc. on Friday for $5.1 billion could spark moves by bigger players hoping to carve out a larger piece of the market, analysts said.

At stake is the $65 billion market for business software, the applications that companies use to track their finances, inventory, production, sales, customers and employees.

The highly fragmented market has long been considered ripe for consolidation, with excellent growth prospects for software serving mid- to smaller-sized businesses.

Germany's SAP AG and No. 1 software maker Microsoft Corp. are pushing their own offerings, and Oracle, the leading database software maker, has also been trying to claim a piece of the business applications market.

Oracle's move was widely seen as defensive play after PeopleSoft said earlier this week that it would buy another major competitor, J.D. Edwards & Co., for $1.6 billion in a stock deal that would have vaulted PeopleSoft ahead of Oracle.

Albert Pang, a researcher at IDC Corp., said that anything could happen over the next few weeks, including attempts by business software heavyweight SAP or deep-pocketed Microsoft to scuttle Oracle's designs.

"The Microsoft factor has to play into this equation," Pang said, "They definitely would not want to let any opportunity pass by. The Oracle deal is far from a done deal."

The weaker global economy is only increasing the strength and influence of larger software makers, where the top four companies control only about 15 percent of the highly fragmented business software market, Pang said, making the market ripe for consolidation.

"I think this is going to force the hand" of other players in the sector, said Jamie Friedman, analyst at Fulcrum Global Partners.

Friedman said that Siebel Systems Inc., the maker of customer service and tracking software, could be pulled into a deal as either a buyer or a seller in the coming days or weeks.

BIGGER FISH

So far Redmond, Washington-based Microsoft has remained silent, although it could disrupt any ongoing deals quickly if it decides to tap into its $46 billion cash hoard.

But Microsoft has also repeatedly expressed its reluctance to buy big companies and it still faces an antitrust probe by European regulators.

"In the studies we've made of larger acquisitions, they're pretty difficult to pull off," Microsoft Chief Financial Officer John Connors told investors at a conference in New York on Thursday.

"We generally though are very good at small acquisitions where you basically are buying a company that had great research and development talent in the men and women you are trying to acquire," Connors said.

Another subtext to this week's developments is a race to control future standards for business software as companies shift their software and services over to Web-based services.

Microsoft, which has maintained its strategic lead over rivals by keeping a tight grip on computing standards and platforms, could step in as a buyer if it sees a threat to its own Web services initiative, called .NET, analysts said.

"When the dust settles you're going to be left with a handful of companies that are going to set the (software and Web services) standards," IDC's Pang said.

http://biz.yahoo.com/rf/030606/tech_software_1.html

Both J.D. Edwards and PeopleSoft had been close partners with IBM's $13 billion software division, which helped the companies reach global customers in exchange for their support of IBM's hardware and software. There's no reason to think that relationship will be negatively affected by today's acquisition.

Let The Software Shakeout Begin
http://www.forbes.com/2003/06/02/cx_ld_0602psft.html

Hitting $1 billion in sales is a rare feat in the software business. In fact, of the 549 publicly held software companies, only 15 have at least $1 billion in sales.

Software's Life Of Quiet Desperation
http://www.forbes.com/2003/04/10/cx_ld_0410software.html

Note: Only 5 software companies have ever reached the $2B revenue milestone: IBM, Microsoft, Oracle, SAP, and CA.