Friday, October 12, 2007

Consolidation in the Software Industry

In June of 2003 I noted that, according to Yahoo Financials, Microsoft was larger than the next 40 largest software/service companies:

Quest Software, Inc. + Tibco Software, Inc. + Documentum, Inc. + Take-Two Interactive + Activision, Inc.+ Hyperion Solutions Corp. + Sybase, Inc. + Macromedia, Inc. + RealNetworks, Inc. + Business Objects + Cognizant Technology Sol. + Red Hat, Inc. + Satyam Computer + J.D. Edwards & Company + Autodesk, Inc. + CSK Corporation + Network Associates, Inc. + Konami Corporation + Compuware Corporation + Trend Micro Incorporated + Cognos Incorporated + Mercury Interactive Corp. + VeriSign, Inc. + Citrix Systems, Inc. + Cadence Design Systems + BMC Software, Inc. + Amdocs Limited + BEA Systems, Inc.+ Synopsys, Inc. + Siebel Systems, Inc. + Check Point Software Tech + PeopleSoft, Inc. + Infosys Technologies Ltd.+ Symantec Corporation + Adobe Systems Incorporate + Intuit Inc. + Electronic Arts Inc. + VERITAS Software Corp. + Computer Associates + SAP AG + Oracle Corporation

As I scanned this list, it occurred to me how many of them have been acquired...
  1. Documentum --> EMC
  2. Veritas --> Symantec
  3. Hyperion Solutions --> Oracle
  4. Macromedia --> Adobe
  5. Business Objects --> SAP
  6. J.D. Edwards --> PeopleSoft / Oracle
  7. Network Associates --> McAffee
  8. Mercury Interactive --> HP
  9. BEA Systems --> ??TBD - Oracle??
  10. Siebel --> Oracle
  11. PeopleSoft --> Oracle

It is interesting to look at the list of companies that didn't get acquired. Let's remove the non-enterprise I.T. companies (entertainment software, semiconductor, consulting). The odd balls include: Sybase, Tibco, Cognos, Adobe, Citrix, BMC, Red Hat and Computer Associates. In my opinion, these companies need to find a home - and soon.

Companies that have had significant growth since my last post include:
VMware, Inc. and, however you should note that their PE's are 269xTTM and 1,245xTTM - and in my humble opinion - this is just a tad bit inflated! At some point these companies are going to have to increase their top line numbers. Regardless, we've entered into a period of massive consolidation where few new companies can truly shake the market.

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