Tech titans on lookout for deals

Published 7:23 pm Friday, September 10, 2010

SAN JOSE, Calif. — From Hewlett-Packard and Cisco Systems to Intel and Oracle, some of Silicon Valley’s largest companies charged out of the recession with fat bankrolls and a determination to spend whatever it takes this year to reshape their businesses around emerging technologies.

If the buying binge continues, 2010 could rank among the biggest for billion-dollar deals in a decade. Tech companies already have announced six purchases worth at least $1 billion so far this year, according to The 451 Group, which has compiled such data since 2002. The record, set in 2009, is seven.

More and more, workers and consumers are using smart phones and other mobile devices instead of desktop computers. At the same time, growing numbers of businesses and others are housing their information in data centers that can be accessed over the Internet, a trend known as “cloud computing.”

To cash in on those trends, tech giants are racing to snap up established corporations and catapult themselves into new markets without having to spend years trying to develop the technology themselves. In some cases, the deals have intensified competition in the industry.

“Computing has shifted,” said R. “Ray” Wang, a veteran tech consultant with the Altimeter Group. Noting that for many computer hardware firms, such as H-P and Intel, “the future means they have to do more in software,” he added, “I think we’re going to continue seeing this kind of consolidation.”

During the depths of the recession two years ago, many firms’ boards balked at buying anything. “If you were a CEO or a CFO and said, ‘I’ve got a great deal lined up,’ they said, ‘Now’s not the time,’” said 451 analyst Brenon Daly.

Instead, companies cut costs and stockpiled cash. They’re more free-spending now, experts say, in part because the sagging stock market has made it cheaper to buy public companies and because the interest rates paid on savings are so low.

“Nobody’s making any money on cash these days,” said Shannon Cross, an investment analyst with Cross Research. “But if you buy something that’s making money, that contributes to your business.”

H-P reported $14.7 billion in cash and short-term investments as of last month, while Intel said it had $12.2 billion as of July.

Another major motivation for buying other businesses is to expand into new markets.

“They want to have a full-service offering to be able to serve the really big customers” who tend to dislike dealing with multiple suppliers, said Richard Hanley, a transactions expert with KPMG.

Moreover, many tech firms remain nervous about how their products will fare in the future. So they are hedging their bets by buying other companies to acquire different products, according to Crawford Del Prete of the research firm IDC. “It’s very much a symptom of the uncertain times,” Del Prete said.

One example of companies desperate to branch out is Palo Alto, Calif.-based H-P and its rival Dell, which sparred earlier this month over data-storage provider 3Par. HP eventually won the bidding war with a $2.4 billion offer, more than three times the price of 3Par’s stock before takeover talks began.

Both computer makers coveted 3Par because they wanted to improve their data-storage product lines, said analyst Unni Narayanan of Primary Global Research. In addition, 3Par’s products help data center operators boost their storage capacity and quickly reassign workloads across multiple devices, as users’ needs change — important features for increasingly popular cloud computing.