The global economy might not be on the mend as much as we would like, but there are plenty of IT behemoths sitting on big bags of cash, and tongues are a-wagging today about data warehousing appliance maker Netezza and security and systems software maker Symantec both being possible takeover targets.
It's hard not to be cynical about who starts such rumors - it would be a safe guess that it is investors in a stock who are engaged in wishful thinking - but the effects on share prices are no less real. So is the fact that both companies could be eaten by much bigger companies hoping to add some arrows to their IT quivers.
As El Reg is going to press just as Wall Street is shutting down for the day, Netezza's stock is up 12.6 per cent, to just over $24 a pop, giving the company a market capitalization of $1.32bn. The stock had peaked today at $24.64 a share. The Barron's, the stock trading rag and sister paper of the Wall Street Journal, cites Oppenheimer analyst Ittai Kidron speculating about Dell, IBM, or HP possibly being interested in acquiring Netezza.
Oracle, of course, might be interested, as El Reg already explained, since the Exadata V2 appliance is not as good at data warehousing as it is at online transaction processing, according to Oracle's competitors.
Moreover, as we told you only last week, Netezza's revenues exploded in the second quarter, rising 45 per cent to $63.8m, with profits more than quadrupling to $3.2m. The company has an upgrade to its TwinFin data warehousing appliances right around the corner and is expected to have a record year. With a proper IT giant behind it, with a much larger sales force, the Netezza appliances could do much better. HP's NeoView warehouses are weak, and it is dependent on other database makers (predominantly Oracle, Sybase, and Microsoft).
Dell doesn't have software and probably wants a piece of the data analytics action. IBM will eat anything that might be useful, and the TwinFins are already based on Big Blue's BladeCenter hardware with some modified FPGAs for database and storage acceleration. NEC, which is making variants of the Netezza appliances based on its own Express5800 iron, is also a possible buyer for Netezza.
The question is, who would want to shell out a hefty premium for a company that will have maybe $250m in annual revenues for 2010 and maybe something like $325m in 2011 if current growth rates are sustainable and improve slightly. By that measure – and considering the relatively weak profits Netezza has - it is bringing around 5 per cent to the bottom line. It would seem that the $1.32bn market capitalization that Netezza enjoys is excessive.
But that's Wall Street for you, and since all of our retirements depend on that computer-driven pachinko machine, people come up with reasons to justify that stock price. They will come up with even sillier ones to justify paying somewhere between $1.6bn and $1.7bn for the company. Look at what just happened with 3PAR, a storage maker with even lower revenues than Netezza, which had about $40m in disk storage sales in the second quarter according to IDC, but which HP last week paid $2.4bn to acquire after a dramatic bidding war with Dell.
With Intel paying an incredible $7.68bn to acquire security software maker McAfee and Symantec losing share to its rivals in the storage software racket that Symantec entered through its $13.5bn all-stock buyout in December 2004, Symantec is a harder acquisition target case to make.
There's some muttering at Barron's that Microsoft might be interested in acquiring Symantec. The company's shares spiked 4.4 per cent on the day, to $14.58 a pop, on the takeover rumors, but with a market capitalization of over $11bn against around $6bn a year in revenues and $753m in net income (about 13 per cent of revenue, which is not too bad), whatever price Symantec would fetch would be incredibly large compared to what it could actually do for the books in the short term.
It would take an enterprise-sized IT player who needed file systems, archiving, storage, security, and other systems software to fill in big product gaps. This is a good business, but a cut-throat one where it is difficult to grow.
It would make far more sense for Symantec to break itself into bits, making its management and some investment bankers super rich while making an utter mess of the hodgepodge of software Symantec has cobbled together over the years to be an enterprise player. HP and IBM are better fits for Symantec than Microsoft, although it would make sense for Microsoft to take the antivirus and security bits and for someone like IBM or HP to take the storage, file system, and systems management bits.
IBM is too busy buying back its own stock to prop up earnings per share, so a $14bn or $15bn acquisition is just out of the question. IBM was scoffing at $5.4bn net of cash to buy Sun Microsystems, which had the same scale of revenues. Dell could sure use just about all of Symantec, but can't afford to buy Symantec dinner and a movie, much less propose marriage. ®