India’s HCL Bets $1.8bn On Long-Selling IBM Software

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Indian IT services group HCL Technologies has paid $1.8 billion for long-used IBM business software products in a deal that is aimed at building on its customer base but which sent the company’s stock falling. The purchase announced Friday is described as the largest-ever acquisition by an Indian information technology services company. HCL’s move extends from its intellectual property partnership with IBM and includes Lotus Notes, Appscan, and Domino as the company looks to cater to a market of over $50 billion for these products.

Greyhound Research CEO Sanchit Vir Gogia thinks the software purchase is part of HCL’s attempt to drive growth through intellectual property, but says that developing and scaling standalone “software as a service” products will require a new approach from the company.

Yet the Indian company’s relationship with IBM for intellectual property development likely will soften that journey, he said.

“HCL Technologies can turn this in its favor if it offers concrete guidance on its commitment to code and R&D overall, an area that it is currently not known for,” Gogia said.

“In theory, this bold move is a step in the right direction and supposed to act as a shot in the arm for HCL, but the ground reality is that these IBM products come with a ton of baggage,” he said.

Gogia called the $1.8 billion purchase “a sweet deal for IBM” as it will be able to recover the money spent on these products.

“Let’s not forget: If these products were indeed doing well within the IBM scheme of things, then the company would have never decided to sell them in the first place,” he said.

[Nikkei Asian Review]

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Sanchit Vir Gogia: Sanchit is the Chief Analyst, Founder & CEO of Greyhound Research, an award-winning global research & advisory firm. To read more about him, click here.

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