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HCL Technologies Sees $1.8B IBM Deal A Win For Both Companies, Customers

With the software products, including icons like Lotus Notes and the fast-growing BigFix security application, HCL Technologies will also get IBM sales and development teams it said will ensure clients will see a smooth transition to the global services provider.

HCL Technologies' planned acquisition of a number of IBM software applications will lead to growth of those applications for the company and clients as HCL continues their development, and in particular turns many of them into as-a-service offerings, company executives said.

Those executives, speaking to financial analysts early Friday, also said that HCL Technologies is getting a large team of IBM sales and development people which should help smooth the transition of customers to the Noida, India-based global solution provider.

The financial analyst conference call came in the wake of HCL Technologies' Thursday announcement that it will acquire several IBM software products in the security, collaboration, and marketing automation spaces for $1.8 billion.

[Related: 7 Things To Know About The $1.8B IBM-HCL Technologies Deal]

The sale of the IBM software is not a reason for alarm, said Joe Mertens, president of Sirius Computer Solutions, a San Antonio, Texas-based solution provider and long-time IBM channel partner.

"The reality is, IBM has sold other legacy and end-of-life products, but they weren't really end-of-life, to HCL in the past," Mertens told CRN. "Typically, that was no issue for us. We continue to play in those markets."

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.

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.

The acquisition, expected to close in mid-2019, addresses a big and growing market, especially areas like security, marketing, and commerce, said company president C Vijayakumar in prepared remarks.

"It's over a $50-billion product opportunity," he said. "Not just services. [The] software product business is a $50-billion product opportunity in these product areas that we've acquired."

Many of the product areas related to the planned software acquisition are strategic to HCL, Vijayakumar said. "They all play to digital marketing operations, marketing automation, omni-channel commerce, and security. So we believe it's a very [important] mix to what we are doing."

A big part of the acquisition is that HCL Technologies gets access to serve and grow over 5,000 global enterprises across a wide range of industries and geographic markets, Vijayakumar said.

HCL Technologies also anticipates that the addition of these software products to its products and platform business will also boost its services business, he said.

Darren Oberst, corporate vice president of products and platforms for HCL Technologies, said during his prepared remarks that the worldwide enterprise software market is worth over $400 billion, with over $50 billion of that market addressed by the software products HCL Technologies is acquiring.

"It is the largest profit pool in enterprise IT, and one that we believe we bring a lot of core competencies and very natural synergies with," Oberst said.

Each of the products are in attractive markets, and are all growing by single-digit or double-digit growth rates, Oberst said. And there is a lot of overlap between the customers of those software products and HCL's own customer base, he said.

During the question and answer period, Vijayakumar was asked how HCL will handle the fact that many of the acquired products were services-agnostic under IBM.

Vijayakumar said HCL's core services strategy will continue to be product-agnostic, but that the company will make as-a-service offerings of many of its software available, giving it the ability to offer the right version depending on customer requirements.

"[Our] products and platforms is an independent business unit with its own sales channel and everything, so we plan to operate this products business and services business with a certain level of separation," he said. "However, there are synergies by creating as-a-service offerings. The services sales teams can pick up products from any other provider as well. There are certain advantages to picking up the products that we have. That's how all the product and services companies operate."

Oberst, responding to an analyst question about how the acquisition will impact IBM sales teams, said the transaction will include the transfer of salespeople from IBM to HCL Technologies, with HCL Technologies taking over end-to-end sales responsibilities for both existing customer contracts and new sales.

HCL Technologies will also see the transfer of engineering resources from IBM for the two products in which it previously did not have an IP relationship IBM, particularly in the connections and commerce areas, Oberst said.

HCL Technologies sees three type of customers in relation to the acquisition, Oberst said.

The first type, and the largest category, includes clients who are focused on the products themselves. "As they see energy and focus and investment from HCL, we believe that the overwhelming majority of those customers will view this as a relatively smooth and neutral transition," he said.

The second category of customers are those who are deeply committed to the product and will be excited by the deep commitment that HCL Technologies.

"[They will be really excited by the fact that they see these products now in the hands of a vendor who is really passionate, who's going to be investing in viewing them as a top strategic priority," he said.

The third category, Oberst said, will be customers are "deep-blue IBM customers where we probably will have to do some work convincing those customers of the value that we can bring."

Vijayakumar said HCL Technologies is currently enjoying strong growth, particularly in its products and platforms business. Second quarter fiscal 2019 revenue for that business has grown at a cumulative annual growth rate of 78 percent since fiscal 2016, and during the quarter crossed the $1 billion annual run rate.

The company is also seeing a strong business pipeline and organic growth momentum across all its service lines, he said.

"And more importantly, speaking of across all service lines, be it our engineering services, infrastructure business, application business, and even the BPO business, across the board our teams are firing on all cylinders," he said.

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