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Big Blue eyes the Sun - Views on News from Equitymaster
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  • Mar 19, 2009

    Big Blue eyes the Sun

    IBM to take on HP in the server market
    IBM, the world's second largest technology company after HP, has shown interest in buying out the server computer maker Sun Microsystems for a consideration of US$ 7 bn. While there is no official comment from the two companies, the deal, if it goes through, will give IBM (also known as Big Blue) a bigger control of the server market and make it a fitting rival for the likes of HP, Dell and Microsoft.

    Anyways, this deal comes at a time when the global IT budgets are seen shrinking on the back of recession in the developed world and severe slowdown in developing economies. Per the IT market trends tracker IDC Inc. as quoted in today's DNA Money, the worldwide server market declined 14% to US$ 13.5 bn in the fourth quarter of 2008. Revenues for the full year 2008 declined by 3.3% to US$ 53 bn.

    So why is IBM eyeing a slowing market where the overall profitability is not so great? Possibly because Sun is a very strong player in the open source market, and has a strong presence in the BFSI (banking, financial services and insurance), telecom and government verticals. In India, for instance, Sun boasts of large customers like HDFC Bank, Punjab National Bank and Tata Teleservices. As per IDC data, the combination of IBM and Sun makes up around 42% of the global server market.

    Stocks in Asia open mixed
    Following the strength witnessed in the US markets yesterday, stocks in Asia have opened today on a mixed note. With the exception of China and Hong Kong, benchmark indices of all the other key markets are trading amidst strength currently. In the US yesterday, stocks rallied following the Federal Reserve (US central bank) announcement that it will buy up to US$ 300 bn in long term government bonds in order to bring down interest rates and push borrowing and spending in the economy.

    While the US markets have seen the Fed's bond buying as a positive, we are reminded here of the warning given by Jim Rogers and Marc Faber that such actions will lead to high inflation in the future that will eventually lead to a crash in the bond market. Rogers, in fact, thinks the US government bonds to be "one of the great shorts of our time somewhere down the road."

    India Inc.'s hopes lie on public deposits
    The global financial crisis and the paucity of funds have compelled many Indian companies to look for different ways of raising funds. One such means of raising resources that has caught the fancy of India Inc. is fixed deposits from the public and shareholders. Take the case of Indian Hotels. As reported yesterday on the Wall Street Journal, the company is offering an annual interest rate of 9.5% on a two-year fixed deposit and 10% on a three-year term with a minimum deposit of Rs 25,000.

    In fact, Indian Hotels is the second Tata Group company to adopt this route. Tata Motors earlier invited fixed-term deposits for the first time in 13 years as it seeked to refinance debt it took on to buy the Jaguar and Land Rover brands. Of course, many companies of the Tata Group have been facing liquidity problems due to a host of factors such as capex plans and expensive acquisitions. But the Tatas are not the only one going in for deposits. Recently, Mahindra Finance had invited fixed deposits from the public for the first time after 3 years. Just goes to show that Indian companies are being pushed to the limit when it comes to raising finances in these crunch times.



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