Subba’s Serendipitous moments

September 29, 2008

The HCL bid for Axon

Filed under: Business,Competition — Subbaraman Iyer @ 9:41 pm
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As was reported here, HCL formally launched an acquisition bid for Axon by raising its bid by 8.3% over the Infosys bid. Infosys will now have the opportunity to increase the bid.

It is quite easy for Infosys to enter into the bidding war given that Infosys is sitting on a cash chest of $1.8 billion. HCL is already stretched because it has only $500 million in cash and this acquisition will be funded by raising debt. Given this debt funding, HCL’s net income will be diluted considerably. In fact, with all the offshoring advantage HCL  has, it is valued at about 12 times EBITDA. It is no wonder that HCL shares plunged by about 12% in a market which was already in a downward trend. Further, Morgan Stanley downgraded HCL from overweight to underweight keeping in view the acquisition risk.

Given that Infosys original offer was itself valuing Axon at 24 times EBITDA, this increased bid will make it even higher for a SAP consulting house. Despite the advantages of being in Europe and some of the intrinsic strengths of Axon, I think this may turn out to be an expensive buy for the eventual buyer — be it Infosys or HCL.

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September 10, 2008

Cloud is confusing!

Filed under: Business,Model — Subbaraman Iyer @ 2:40 pm
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“Cloud computing” has been a buzzword and it means different things to different people. What started as the ASP in the early part of the decade, morphed to Utility computing and now everything is “Cloud computing”.

Generically speaking, the tern “cloud computing” is just an alternate  solution that doesn’t use the in-house data centre or any vendor specific hosting resource. It is a virtual huge infrastructure where both computing and storage resource is available on a pay-as-you-go on-demand basis. The compelling benefit is in its scalability  and the ability to access an application anywhere. There are clearly 2 distinct layers in the cloud:

Infrastructure: Amazon Web services is the poster child offering both computing and storage resources with a simple API interface. It has been a tremendous success gauged by the fact that Amazon’s EC2 and S3 in Q4 2007 exceeded all of Amazon’s web properties during its own peak time. See the impressive evidence here.

Platform: Google’s AppEngine and a few other platforms offer a development environment where the developer adheres to certain guidelines and the scaling is performed by the platform.

However Forrester in their latest report have expanded the definition of the “cloud computing” and in the process have even made the definition even foggier.

Clearly Software as a service and Web services cannot be considered as part of a cloud since the former is a specific end user software with a specific functionality focus. They outgrew from the traditional world of the application service provider hosted and are the least flexible. The Web services world again is a specific application for an organization.

If one takes the factors flexibility, scalability, ubiquity as the cornerstones of cloud computing, I fail to understand how SaaS or Web services or even App components-as-a-service become part of the cloud.

In my view it is only the bottom 3 layers that constitute the cloud. I would like to view the Cloud as just another way the IT infrastructure is being delivered and consumed.

I am just waiting to see how the other analysts define the cloud.

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September 9, 2008

HCL counters Infosys bid

Filed under: Business,Competition,India,Strategy — Subbaraman Iyer @ 6:29 pm
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I didn’t expect a bidding war over Axon.  I thought that it was a done deal. In my opinion, Infosys is already paying a big premium for Axon. Now, the Times of India reports that HCL Technologies is offering a 15% over and above the Infosys bid.

Between the two companies, Infosys at least has a better strategic fit and based on limited information that I know both Infosys and Axon have similar values. HCL Technologies may badly need this acquisition to bolster their presence in the SAP space, but given their management style, it is more likely that some cultural clashes could happen. Result — some of the star employees of Axon could just quit.

Will Infosys get into a bidding war?

It would be interesting to see who gets this expensive prize as Axon’s shareholders could still vote for Infosys bid, the higher price of HCL Technologies notwithstanding.

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