Sources inform "Globes" that computers and services giant IBM (NYSE: IBM) is in advanced negotiations to acquire 10% of e-mail company Openwave Systems (Nasdaq: OPWV). The deal, expected to be in cash at Openwave's current market value of $828.8 million, will add $90 million to Openwave's cash reserves. In its first quarter results, published in April, Openwave reported cash reserves of $203.6 million.
Openwave and IBM first announced a 10-year cooperation agreement on May 6 for providing open solutions.
IBM has invested almost $1 billion in recent years in developing products to penetrate the cellular operator sector. The company's flagship product developed in the past two-three years is WebSphere, which features a cellular portal considered the strongest and most advanced in the world.
The deal will provide Openwave with very strong financial backing and massive reinforcement in the field, thanks to IBM's huge sales and services capacity.
The most important benefit IBM will derive from the deal is access to Openwave's customer base, which currently includes 60 large cellular customers in the US, Europe, and Asia. After investing prodigious resources over the past two years in penetrating the cellular industry, the acquisition will give IBM an important entering wedge.
Sources inform "Globes" that before contacting Openwave, IBM tried for two years to reach a strategic cooperation agreement with Comverse Technology (Nasdaq: CMVT), without success. Cooperation of this sort requires the partners to provide services, support, hardware, and software. Comverse did not agree to share the revenue, wanting to supply everything by itself. The IBM negotiating team understood the impossibility of reaching an agreement that would enable it to make a profit also, whether through sales of hardware, services, support, software, or any other aspect. Negotiations with Openwave continued for months and have now reached an advanced stage and are apparently on the verge of a signed agreement.
Had Comverse management has been willing to compromise, it would now be able to utilize IBM's enormous power. It was not wise enough, however, to expand its horizons while forging strong bonds with important multinationals like IBM. Furthermore, when IBM becomes a shareholder in Openwave, it will thereby become a competitor of Comverse. In the current state of the communications market, particularly the state of Comverse itself, it can be assumed that the last thing it needs now is competition from IBM.
As for Openwave, the acquisition will provide it with financial stability and put it on a new business level through the use of IBM's huge sales apparatus and its professional services setup, considered the world's largest services department. IBM provides an extremely wide variety of services, including hosting and managed services.
IBM has enlarged its product range in recent years. From a company selling computers only, it has become a service-selling company, through its IBM Global Services division, the largest integration concern in the world.
If and when the acquisition goes through, it will constitute an extremely important lifeline for Openwave, which has suffered severely from the recent communications market slowdown. Openwave had scored a dizzying success in the e-mail market, but gambled on WAP access servers and third generation cellular technology, and came up empty-handed, at least for now.
In the unified messaging field, Openwave did not manage to break through and make significant deals. Communications operators report that its solution is not ready and does not have the expected quality.
It appears that sales of Openwave's e-mail product, which was the flagship product of Software.com, are declining, since e-mail still does not produce significant revenue for communications operators. The price communications companies are willing to pay is therefore falling steeply, regardless of the quality of the solution.
Published by Globes [online] - www.globes.co.il - on May 8, 2002