US-based International Business Machines (IBM) said on Thursday it will sell some of its software products business to Indian IT services company HCL Technologies for $1.80 billion.
The software products in scope represent a total addressable market of more than $50 billion, IBM said in a statement.
Analysts are cagey about HCL Technologies’s ability to compete better with bigger rivals such as TCS, Infosys and Wipro.
Some analysts said the deal worth $1.8 billion did not make sense for HCL in the long term because it already has a partnership with IBM and the benefits from the acquisition did not justify the price.
“IBM’s journey to rebalance its enterprise software portfolio around areas such as AI, hybrid cloud, and supply chain shifted into high gear with an agreement to sell a group of its collaboration and experience products to HCL Technologies,” Allen Bonde, vice president, Research Director, in a Forrester in a blog said.
HCL-IBM partnerships
November 2015 — HCL and IBM to develop on IBM PaaS
September 2016 — HCL and IBM sign 15-year partnership around Tivoli and Rational
February 2017 — HCL licenses IBM application security products
October 2017 — HCL takes over Notes and Domino development
August 2018 — HCL takes over development and release support for IBM WebSphere Portal (Portal), IBM Web Content Manager (WCM), and IBM Web Experience Factory (WEF)
The acquisition, if completed, will be the largest-ever acquisition by an Indian technology company, according to Refinitiv data.
The deal will allow IBM to further slim down its legacy businesses as it focuses on cloud computing. The U.S. company has been hurt by slowing software sales and wavering demand for mainframe servers, making a turnaround difficult.
HCL said the acquisition will give it scale in areas such as retail, financial services and transportation. It will add about $650 million in revenue on a run-rate basis in the second year after closing and increase cash earnings by about 15 percent.
HCL, which has a market value of nearly $20 billion, recorded revenue of $7.16 billion last fiscal year. TCS earned 1.23 trillion rupees in revenue last year and Infosys recorded revenue of 705.22 billion rupees, Reuters reported.
The company will divest seven of its products, including its secure device management product BigFix, marketing automation product Unica and workstream collaboration product Connections.
What HCL gets
# Appscan for secure application development
# BigFix for secure device management
# Unica (on-premise) for marketing automation
# Commerce (on-premise) for omni-channel eCommerce
# Portal (on-premise) for digital experience
# Notes & Domino for email and low-code rapid application development
# Connections for workstream collaboration
“The products that we are acquiring are in large growing market areas like security, marketing and commerce which are strategic segments for HCL,” said C Vijayakumar, chief executive officer of HCL.
IBM’s software sales, which have slowed down in the past, also weighed on its latest quarterly revenue.
“We have been prioritizing our investments to develop integrated capabilities in areas such as AI for business, hybrid cloud, cybersecurity, analytics, supply chain and blockchain as well as industry-specific platforms and solutions including healthcare, industrial IOT, and financial services,” said John Kelly, IBM senior vice president, Cognitive Solutions and Research.
HCL’s revenue from software services business rose about 21 percent to INR 87.11 billion.
IBM is in the process of buying U.S. software company Red Hat for $34 billion, including debt.
