2011: Tech firms go high on buys

IT companies opened up their coffers for a string of acquisitions in 2011 to expand offerings and enter new business arenas as well as arm up on patent portfolios.
Written by Liau Yun Qing, Contributor on

It's been a year of consolidation and, in some cases, unexpected acquisitions in the IT world, as bigwigs such as Google, Hewlett-Packard (HP) and Microsoft all shelled out for companies that they hope will better improve their industry positions.

Google, for one, splashed out US$12.5 billion to buy handset maker Motorola Mobility, making it its most expensive purchase to date, as it looked to boost the Android ecosystem as well as bolster its patent portfolio for legal attacks from rivals such as Microsoft, Apple and Oracle.

Microsoft, too, made its biggest acquisition yet with its US$8.5 billion Skype deal as it looked to "redefine" communications by integrating the Internet phone service company across its product lines.

ZDNet Asia rounds up five of the year's noteworthy deals and how these are expected to shake up the industry.

Google "supercharges" Android
The search giant sent a message to the mobile industry in August this year when it announced that it would be buying handset maker Motorola Mobility for US$12.5 billion.

Not only is this Google's biggest buy ever--its 2008 acquisition of DoubleClick coming in a distant second at US$3.1 billion--CEO Larry Page stated in a blog post then that the deal would strengthen and "supercharge" the entire Android ecosystem for consumers, partners and developers.

Additionally, Motorola Mobility's existing patent portfolio would also augment Google's to better enable the Internet company to fend off anti-competitive threats from rivals such as Microsoft, Apple and other companies, Page added.

Ovum analyst Tim Renowden though said the deal posed a "delicate balancing act" for Google to manage with other Android partners, as any hint of favoritism or signs that Motorola is getting an unfair advantage could displease the rest.

"We may see Samsung, HTC, LG, Sony Ericsson and others reinvest in alternative mobile platforms, most likely Microsoft's Windows Phone ecosystems, to keep Google honest," the analyst said after the announcement.

Microsoft rings in with Skype
Microsoft was not waiting idly to benefit from its rivals' misfortunes, though.

The software giant had gone ahead in May to make buying Internet phone service provider Skype its statement of intent, with the US$8.5 billion deal announced this May.

It took another five months for the deal to be ratified by regulatory authorities in the U.S. and Europe, but Oct. 14 saw Skype officially join Redmond with the formation of a new unit--the Skype Division--headed by former CEO Tony Bates.

Microsoft CEO Steve Ballmer then outlined the company's integration roadmap for the acquired technologies.

He said: "Over time, we'll enhance the voice and video-chat capabilities of Windows Phone, Windows PCs and Office as well as Xbox and Kinect. The marriage of Skype and Microsoft will give us new opportunities to connect the Skype community and other communities of people who use Outlook, Lync, Xbox Live and Messenger."

HP goes Autonomy
When then-HP CEO Leo Apthekar announced that it would be spinning off its PC business and ending its WebOS operations in August, the news somewhat overshadowed the fact it was also going to fork out US$10 billion to acquire British enterprise information retrieval software company Autonomy.

Explaining the acquisition, Apothekar said this move represented a shift into higher margin businesses, as HP positioned itself as an information management company.

Jillian Mirandi, analyst at Technology Business Research, commented on the deal saying with Autonomy in HP's stable, its business intelligence and overall software capabilities would be more equipped to offer customers a "one-stop-shop experience for nimble, agile and comprehensive deployments".

While Apothekar's decisions ultimately proved decisive in hastening his departure from the IT giant, his legacy, via Autonomy, lives on after newly-installed CEO Meg Whitman decided to go ahead with the acquisition. She reversed several of his decisions, including moving away from a software-focused business strategy, retaining the PC division and opening up WebOS to the open source community, though.

Autonomy--together with another Apothekar buy Vertica-- is now positioned to help HP target companies that need management tools for both human- and machine-friendly data, further explained Mike Lynch, executive vice president of information management and CEO of Autonomy, in November.

SAP buys cloud success
German software company SAP, too, was struggling to compete in the cloud computing arena. Addressing this, it bought SuccessFactors, a cloud-based employee management software maker, for US$3.5 billion on Dec. 3, to boost its standing.

Notably, the company paid out a 52 percent premium above the cloud software vendor's closing stock price on that day. Forrester Research's analyst Paul Hamerman noted when the deal was disclosed that the premium was "significant" and showed that SAP was struggling in its cloud strategy, particularly in talent management.

TBR analyst Elizabeth Henlin added that through the SuccessFactors acquisition, SAP has bought a "successful cloud platform, a significant cloud customer base and skilled executives".

SuccessFactors is SAP's second multi-billion acquisition in two years. It bought software maker Sybase for US$5.8 billion in May last year.

HDD market consolidation
Then there were three. This year, both Western Digital and Seagate both initiated takeover bids for Hitachi's hard-disk drive (HDD) business and Samsung's HDD division, respectively, and effectively reduced the market to three major players together with Toshiba.

In March, Western Digital vaulted over Seagate to be the world's largest HDD manufacturer after it announced its US$4.3 billion deal to buy Hitachi's HDD business. Seagate then retaliated by snapping up Samsung's HDD arm for US$1.375 billion in April, which gave the South Korean company a 9.6 percent stake in the HDD maker in return.

Seagate got some revenge over its rival, though.

The European Commission (EC) ruled in November that since the company lodged its merger notification before Western Digital, the latter will have to make concessions in its Hitachi deal in order for it to be approved. These concessions include having to sell "essential production assets" for 3.5-inch hard drives such as a production plant and intellectual property rights linked to the business, which will help main healthy competition in the industry, the EC stated.

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