IBM to acquire Confluent

Motive Partners Takes $100m Stake in Electric Mind

Motive Partners has taken a $100m stake in Electric Mind (henceforth "EM") described as a "a high-growth, AI-led services firm grounded in engineering excellence". 

"EM"'s former name was Intelliware, and Electric Mind is a "rebranding for the age of AI", with a go-forward focus on growth in wealth and alternative investments.

The plan is to have a close collaboration, with leaders of both firms joining the company's Board. 

Richard Lumb, Motive Industry Partner, will join the Board (former Group CEO of Financial Services at Accenture) as will Sreeram Visvanathan, Head of Motive Create (innovation and value creation engine within Motive Partners) and former CEO of IBM UK and Ireland.

To scale impact across financial services, the Investor-Operator-Innovator (IOI) model of Motive will be brought to bear bringing expertise, connectivity and operational support.

Kyndryl Plans Investment in AI Lab in India

Kyndryl, specialist in infrastructure outsourcing and modernisation, is investing $2.25 billion over three years, including building out an AI lab in Bangalore, India.

Kyndryl was divested from IBM three years ago in November 2021, with Martin Schroeter (MBA, Carnegie Mellon) as its first CEO. Around 88,500 engineers moved to Kyndryl as part of the deal.

At the time of the divestment, Martin emphasised that Kyndryl would continue to have strong links to IBM, but being independent they were not free to work with other hyperscalers and grow the business.

Better VPNs - LC's StackPath Drives to the Edge

Three-year old startup StackPath founded by Lance Crosby (who sold his previous business, SoftLayer, to IBM in 2013 for $2bn) provides "edge computing infrastructure as a service" - or what he describes as a "secure platform at the edge".

StackPath started its initial play by acquiring rack space in 45 locations (colocation data centers) and is now advancing into cell towers as its founder pivots the company towards 5G. It fills out its real estate with space-efficient custom hardware (packing in as much compute, network, memory and storage as feasible to stick within 10kW per rack). Rack switches are made by the company itself, combining "merchant silicon" (i.e. off the shelf components) with StackPath's network operating system. Arista 7500 series switches are used in some cases, manufactured by Santa-Clara based Arista Networks, led by President and CEO Jayshree Ullal.

Clubbing together with technology experts such as Vapor IO (who combine cell tower and data center technology), Edge Micro (co-founded by Mike Hagan, who previously launched Schneider Electric's colocation and cloud division) and BitBox (owned by Compass Datacenters), Crosby is looking at the next phase of expansion. MEC, or mobile edge computing, is a term which has been used to describe this nascent sub-sector of the TMT world.

StackPath emerged from stealth in 2016 and has made six acquisitions since then, adding Web Application Firewall (WAF), DDoS mitigation and VPN - in other words, software components that can plug into its integrated hardware-software edge platform.

A corporate VPN that is fast, secure and sensitive to the needs of mobile workers is envisioned as a potential use case (allowing workers to connect to the servers at the base of the nearest cell tower).

Another target application is software or data distribution as part of a CDN (content delivery network) - a company can send a software patch in one location and have it delivered via StackPath infrastructure efficiently and securely in each target location. Media, gaming and security are also industries where StackPath is aiming to build client base.

Lance is looking to to accomplish all this at low cost to the customer. For example, 50 VMs could potentially cost $2,500.

IBM to Buy Red Hat for $34bn in "Software for the Cloud" Transaction - Cops 5% Loss on Stock Price, RH up 45%

IBM (NYSE:IBM, Beta 0.87, PE 20x) has confirmed it will pay $190 per share for Red Hat (NYSE:RHT, PE 77x - clearly will push up as people buy up the target), a 60% premium to the current stock price. IBM shares traded down 5% mid afternoon New York time, with some bounce back towards the close, and a traded volume of around 17.5 million (average volume is around 2m).

In terms of approvals, IBM already has the approval from the Boards of Directors of IBM and Red Hat. Shareholder and regulatory approvals are remaining now.

Key management include

• IBM CEO Virginia (Ginni) Rometty (a Computer Science and Electrical Engineering graduate from Northwestern)
• IBM CFO James Kavanaugh (appointed January 2018), also oversees Transformation and Operations. He has an MBA from Ohio State and joined IBM in 1996 from AT&T.
• Red Hat CEO Jim Whitehurst (a Computer Science and Economics graduate from Rice in Houston) who began his career at the Boston Consulting Group. He was also COO of Delta Air Lines for 6 years overseeing all aspects of Operations from Sales to Strategy.
• Red Hat CTO Chris Wright,  who has spent time working deep in the Linux kernel.

The focus of the acquisition is software for the cloud (Dell EMC was bigger at $67bn but that was both hardware and software).  This will allow IBM to tap into a market where they estimate 80 percent of business workloads have "yet to move to the cloud". Linux, containers, Kubernetes and multi-cloud management are all on the cards in the new world of IBM. "Open hybrid cloud" is the mantra of the deal.

The acquisition is designed to be free cash flow and gross margin accretive within 12 months. IBM has also expressed commitment to growing its dividend and maintaining strong investment grade credit ratings. It will target a leverage profile consistent with mid to high single A credit rating.

Jim Whitehurst stated that Red Hat is the leading open-source software business, with growth in 66 consecutive quarters, and could leverage IBM's scale and infrastructure and depth in customer relationships to continue its growth journey. He also mentioned that Red Hat and IBM have partnered over 20 years. Ginni Rometty stated "this lifts all boats for IBM" and that the deal prepares IBM for the "second chapter of the Cloud".

Bringing Hardcore Tech In House - Apple Consumes PMIC Supplier

Apple is buying a portion of Dialog Semiconductor for $300m, a manufacturer of power management ICs (PMICs) taking control of its Swindon site as well as offices in Livorno, Italy and Nabern (where Daimler also have a research facility) and Neuaubing in Germany.

For this price, Apple will also acquire Dialog's patents and also take on its chip engineering workforce.  Apple will also prepay $300m to Dialog for products to be delivered over the next 3 years, creating an outlay of $600m for Apple.

Apple's hardware chief Johny Srouji, who reports to CEO Tim Cook, praised Dialog's "deep expertise in chip development" and alluded to their engineers having a long track record supporting Apple from the early days of the iPhone.

Johny joined Apple in 2008 to lead development on the A4, the first Apple-designed System on a Chip, having previously held senior positions at Intel and IBM. He has Bachelors and Masters from Technion which has close links with Intel.

The announcement caused Dialog's shares to surge 30% given the certainty the deal places over its future. The uncertainty (which at one point led to a 20% drop in the share price) was triggered by both Dialog's dependence on Apple (from whom it gets 75% of its revenue), and Apple's decision to drop Imagination Technologies in favour of developing its GPUs in-house, creating anxiety amongst suppliers (Imagination threatened legal action against Apple before being bought out by Canyon Bridge).

Dr Jalal Bagherli, who joined Dialog as CEO in 2005 (and has also worked as CEO of Alphamosaic, a Cambridge startup building video processing chips for mobile, sold to Broadcom in 2004 for $123m), and has a PhD in Electronics from Kent University, said the deal was "in the best interests of employees and shareholders".

Dialog's financial advisors were Qatalyst Partners (the advisory firm led by George Boutros and Frank Quatrrone) and legal counsel Linklaters.

Dialog's competitors in the Smartphone PMIC market are Qualcomm (with about 40% market share), TI (20% market share),  Maxim and formerly ST-Ericsson.

IBM's $1.2bn Data Centre Commitment

IBM is committing more than $1.2 billion to expand its data centres and support cloud computing initiatives, in anticipation of a $200 billion global market for cloud services by 2020.

In 2013, IBM acquired cloud services company SoftLayer (founded in 2005), which rents out servers starting at $159 a month for a dedicated machine, some of the rentals made via Digital Realty (NYSE: DLR).

IBM is also building out a Watson division at a cost $1bn. Watson is IBM's AI machine which has built-in natural language capabilities. It aims to use SoftLayer as a cloud distribution mechanism for services based off Watson.

BoA drops 13% Thursday, Thain Leaves Merrills, Tech Ups and Downs, KBC Bailout

Ex-Merrill chief John Thain is ejected from Bank of America.

mba(thain,hbs).

BoA's general counsel Brian Moynihan replaces Thain. ML announced a loss of $15.3 billion in the fourth quarter, or $9.62 a share.

Microsoft, the maniacal operating system giant, announced it was cutting 5,000 employees indicating few companies are immune to recession. Fiscal discipline is necessary for all technology companies in this climate.

Commented one investment firm manager, "it's tough to do well in this environment, and if a company succeeds, it's a huge compliment to management" adding "Microsoft has turned into the big old sluggish company that IBM used to be".

KBC has been bailed out to the tune of €2 billion from the Flemish government (Flemish is Dutch as spoken in Belgium) fueling a rebound in its shares (adding to the existing bailout paid in October). KBC announced it will concentrate its activities on home markets, reduce costs and market risk. It would scale down its derivatives business.