IBM Selling Big Part Of Its Software Portfolio To India's HCL In $1.8 Billion Deal

India-based global solution provider HCL Technologies on Thursday said it is acquiring a large part of IBM's software portfolio as a way to beef up its software business and its as-a-service capabilities.

HCL, Noida, India, plans to spend about $1.8 billion for a software portfolio from IBM that the two companies say represents a total addressable market exceeding $50 billion.

Included in the acquisition are such IBM products as IBM Appscan, a security-focused application for identifying and managing vulnerabilities in mission-critical applications; IBM BigFix endpoint management and security software; IBM Unica, a cloud-based enterprise marketing automation software; and IBM WebSphere Commerce, an omni-channel commerce platform for B2C and B2B organizations.

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IBM is also selling to HCL its IBM WebSphere Portal, a platform for developing enterprise web portals to help businesses deliver highly personalized social experience to clients; the IBM Notes and IBM Domino collaborative client/server software platform; and IBM Connections, a platform for integrating email, activity and task management, instant messaging, and file and document sharing.

For HCL, the software being acquired is expected to give the company a lift in fast-growing security, marketing and commerce, all of which are strategic to the company, said C Vijayakumar, the company's president and CEO, in a statement.

"The large-scale deployments of these products provide us with a great opportunity to reach and serve thousands of global enterprises across a wide range of industries and markets," Vijayakumar said in that statement.

Darren Oberst, corporate vice president and head of the products and platforms business of HCL, told CRN that the acquisition was part of a long-term strategy by his company to diversify its business.

HCL is an $8 billion, 40-plus-year-old services company with core competencies in both engineering and software outsourcing and IT outsourcing, Oberst said.

"About three years ago, we started looking at our growth strategy and how to move away from the labor-intensive software business to provide more value to our clients," he said.

With the acquisition of this software portfolio from IBM, HCL will be able to combine the entrepreneurial capability, speed and performance of a company like HCL with over 100,000 employees worldwide with the software in such a way that will set it apart from its competitors, Oberst said.

"This represents a fundamentally new direction for us," he said. "We're moving into working with software with some of the largest companies in the world. We want to create a set of solutions that very few companies in the world can deliver."

Going forward, HCL Technologies and IBM will continue their long-term relationship where the two sell each other’s technologies, Oberst said.

"It's a win-win," he said. "We provide incredible opportunities for the software customers, and IBM focuses on the incredible opportunities for growth in the future."

The deal, once it closes, is not expected to have a big change in how IBM's business partners work with the software as it becomes part of HCL Technologies, Oberst said.

"There will be no change in these arrangements until formal deal closure, which is expected to happen by mid-2019," he said. "Post deal closure, HCL will work with IBM business partners to sign them up as HCL partners. Working with business partners has always been a core part of HCL’s business philosophy."

For IBM, the divestiture of this part of its software business is a way for the company to better prioritize its investments in more emerging, high-value segments of the IT industry, said John Kelly, IBM senior vice president of cognitive solutions and research, in a statement.

"Over the last four years, 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 health care, industrial IoT and financial services. … We believe the time is right to divest these select collaboration, marketing and commerce software assets, which are increasingly delivered as stand-alone products," Kelly said in that statement.

The transaction is expected to close by mid-2019. It will be subject to regulatory reviews.

IBM executives were not available to provide more information by press time.

The news that IBM would be selling parts of its software business came as a complete surprise to IBM's channel partners, one of those partners told CRN off the record.

"I can understand getting rid of Lotus Notes and Domino," the solution provider said. "Microsoft Office 365 and Google Apps are killing the hell out of Lotus Notes. But I can't understand getting rid of other products like BigFix. I have called into IBM. I'm sure all the partners do, about what we're supposed to tell our clients, and what support will be like. There's a lot about where do we go from here."

The IBM move is even more difficult to understand given that many of the applications IBM is now selling were recent acquisitions, the solution provider said.

"These are startup companies that IBM bought over the past five years," the solution provider said. "They went through years of 'Blue washing.' And now IBM wants to sell them?"