International Business Machines Corp.
) has completed the $1.3 billion acquisition of Kenexa. IBM had
agreed to buy Kenexa in August 2012. Kenexa develops software
that helps enterprises manage human resources ("HR"). Its HR
solutions are widely popular and its strong client base consists
of approximately 8,900 customers across a number of
The Kenexa acquisition will further expand IBM's business
analytics software offerings going forward. The acquisition is a
major strategic move by IBM to bolster its position in the cloud
based software-as-a-service ("SaaS") market. SaaS is a software
delivery method that enables data access from any device with an
Internet connection and web browser. In this web-based model,
software vendors host and maintain servers, databases and codes
that constitute an application.
Moreover, demand for SaaS-based products has been on the rise
for some time and is expected to increase manifold because of
some inherent benefits associated with the platform. Applications
delivered over the SaaS platform not only allow enterprises to
start using them instantly, but they are also more cost effective
compared to traditional products installed at a customer's onsite
data center. Software updates are also smoother.
IBM is already a leader in enterprise social software,
according to IDC. Moreover, IBM's solutions cater to
approximately 60% of the fortune 100 companies. We believe that
the growth prospects in the SaaS segment is the primary factor
attracting IT giants, such as IBM,
). Both SAP and Oracle enjoy a leading position in the SaaS-based
application market based on a number of acquisitions
(SuccessFactors, Ariba, RightNow, Taleo) in the recent past.
We believe that IBM's entrance into the cloud-based HR
solutions market will intensify competition going forward.
Although it is very difficult to predict a clear winner among
these companies considering the depth of their product portfolios
and diversified customer base, we believe that IBM has an
advantage due to its strong balance sheet. IBM intends to spend
$20 billion on acquisitions up to 2015.
Thus, we remain Neutral over the long term. Currently, IBM has
a Zacks Rank #3 (Hold).
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