While the economy continued its downward spiral this year, the IT industry was cluttered with mergers and acquisitions, many of which were met with resistance and controversy. As the big technology companies got bigger, startups were consumed.
Naysayers are dining on a healthy portion of crow.
The hotly contested merger of Hewlett-Packard Co. and Compaq Computer Corp. topped the list of technology takeovers in 2002. The deal was met with staunch opposition from HP's namesake, Walter Hewlett, who made a last-ditch effort to stave off the deal by issuing a letter to voting shareholders stating that HP would be better off strengthening its own business rather than trying to conquer the IT world. He also called for HP CEO Carly Fiorina's resignation if the merger failed. However, the deal passed by an estimated 45 million votes last April, creating one of the largest technology providers in the world.
Another acquisition that came under the industry's microscope was IBM's $3.5 billion buyout of PricewaterhouseCoopers Consulting (PwC). It was reported that HP was in talks to acquire the consulting firm but passed on the deal two weeks prior to IBM's purchase.
One expert said the market was not ready for the flood of technology startups that made the scene this year.
"What we saw [in 2002] was a number of startups that had promising technology started to run out of gas," said Michael Karp, senior analyst for Enterprise Management Associates Inc.
Karp said that as a result of the down economy and overcrowded technology landscape, many IT companies were able to make good acquisitions.
He pointed to Sun Microsystems Inc.'s acquisition of storage switch startup Pirus Networks as an example of a good technology deal. Similarly, Brocade Communications Systems Inc. bought its own switch startup in Rhapsody Networks in order to speed time to market with storage virtualization technology.
Karp said resistance to mergers and acquisition in IT often has less to do with business than it does with human nature. "Many people are inherently nervous when it comes to change."
After a nine-month hiatus from shopping for technology companies, networking juggernaut Cisco returned to the hunt in 2002 and acquired a number of private companies, including HammerHead Networks Inc. and Navarro Networks Inc.
The company that stands watch from the corner of your PC screen went on a shopping spree of its own in 2002. Symantec, best known for its Norton Antivirus software, picked up managed security service provider Riptech, intrusion-detection system vendor Recourse Technologies, virus alert and media company SecurityFocus and monitoring company Mountain Wave. The wave of acquisitions had some analysts wondering if the company had bitten off more than it could chew, but the company continued to buck the market with positive financial results after fleshing out its product line through the acquisitions.
On the software side of things, Microsoft shelled out $1.45 billion for Danish ERP software maker Navision, giving it more software traction in Europe. The company also acquired XDegrees, a small company known for its secure peer-to-peer technology, in an effort to boost Microsoft's .NET Web services plans.
Web services was the name of the game for Novell Inc. as well in 2002, with the company's $212 million acquisition of SilverStream Software in June. SilverStream makes an extended J2EE-based development, integration and deployment platform.
Customer relationship management (CRM) developer PeopleSoft gobbled up the technology leftovers from bankrupt product configuration software maker Calico Commerce Inc. and added Calico's product configuration features to its own CRM and supply chain management offerings. PeopleSoft also got personal in 2002 by adding Annuncio Technology's online personalization functionality to its CRM software suite.
Last September saw another company on the precipice of bankruptcy offload technology in 2002, with BMC Software Inc. as the beneficiary. For $350 million, Peregrine Systems Inc. sold to BMC its Remedy Corp. business and IT Service Management, Customer Service and Support solutions, as well as its Action Request System development platform.
So what will the playing field look like in 2003? Since it is dependent upon customers' opening their wallets for new technologies, Karp said the IT industry will begin to recover slowly in 2003 as IT budget restrictions begin to ease.
"Recovery is to a large degree a function of the macroeconomic issues," he said. "We will certainly see some recovery in IT budgets, although it's not going to be big. The pendulum is starting to swing again."
He did warn that users will continue to be a lot more circumspect in their purchases causing a sluggish economic recovery. Let us know what you think about the story. E-mail Kevin Komiega, News Writer
FOR MORE INFORMATION:Analysts sound off on merger Users cheer BMC's purchase of Remedy Novell buys SilverStream, and a strategy Internal woes rock Brocade, but Rhapsody buy expected to help