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11/12/2007
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IBM's $5 Billion Cognos Offer Signals Shift Beyond Middleware

IBM says the goal is to create so-called business intelligence tools that outperform the competition in terms of speed, broad compatibility, and completeness.

IBM's proposed $5 billion buyout of analytics tools vendor Cognos would move the company beyond its traditional strength in middleware -- business software that functions behind the scenes -- into the market for software that executives and managers manipulate to gain insights into key performance metrics.

The goal of the deal, IBM officials said, is to create so-called business intelligence tools that outperform the competition in terms of speed, broad compatibility, and completeness. "Customers are demanding complete solutions, not piece parts, to enable real-time decision making," said IBM senior VP Steve Mills, in a statement.

The buyout, IBM's largest, would also move the company a step closer to reentering the end-user applications business -- a market it abandoned years ago save for its Lotus Notes franchise.

Cognos offers business intelligence tools, like its Cognos 8 suite, that let users generate reports, charts, and other tools through which they can quickly get a handle on metrics such as sales, inventories, fulfillment rates, and the like. The Ottawa-based company's customers include corporate giants like BMW, Bank of America and Dow Chemical.

For its part, IBM -- in part through acquisitions -- has been building a strong portfolio of middleware that can extract raw data from various departments within an enterprise and feed it to business intelligence tools like those offered by Cognos.

In recent months, IBM has bought out middleware vendors Ascential Software, FileNet, Trigo, and others.

By adding Cognos, IBM would be in a position to offer customers a complete information management platform that begins with its DB2 database line, runs through its middleware offerings, and extends out to Cognos-powered dashboards and reports tapped by line-of-business end users.

"IBM is a perfect compliment to our strategy, with minimal overlap in products," said Cognos president and CEO Rob Ashe, in a statement. Ashe plans to join IBM, where he would report to Ambuj Goyal -- GM of IBM's Information Management Software division.

IBM's desire to move closer to the end-user may be a response to competitive pressures. IBM rival Oracle recently snapped up Hyperion for $3.3 billion, while SAP acquired Business Objects for $7 billion -- moves that made IBM's software portfolio appear lacking by comparison and left Cognos as the only major business intelligence vendor without a dance partner.

"This may be more of a move to try to stay relevant in the enterprise software space for IBM," said David O'Connell, a senior analyst at Nucleus Research.

Cognos employs about 4,000 workers. IBM did not disclose plans for integrating the company's workforce into its operations. The $58 per-share offer remains subject to a number of closing conditions and regulatory approvals.

In early trading Monday, Cognos' shares were up almost 8% to $57.11 per share.

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