Consolidation on the horizon?

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Computer Associates chairman and CEO Sanjay Kumar has predicted that many mid-size technology companies will be forced to consolidate, as the industry undergoes a fundamental structural change.

“You're going to see a lot more consolidation over the next few years,” Kumar said during a keynote address at CA World 2003 in Las Vegas.

Citing EMC's US$1.3 billion buy out of Legato and Oracle's aggressive takeover attempt on PeopleSoft, Kumar predicted that large companies for the most part will survive, however many midsize companies will find it difficult. “There is a fundamental structural change going on in industry,” he said.

According to Kumar, the industry is changing in three ways: firstly size, with increased consolidation in the market; secondly breadth with vendors, such as EMC, moving across into new product areas and offering more “integrated solutions” rather than access point products; and finally complexity as there are “too many products and too many vendors”.

Kumar said CA is in a better position because it already underwent aggressive consolidation in the 1990s and has tweaked its business model.

CA completely revamped its business model more than two years ago, changing its contract and revenue model to “increase transperancy”, Kumar said. The move was initially questioned by investors, Wall Street and competitors, he said. However customers warmed to the flexibility and “Wall Street seems to be coming around too”.

CA will also not play into this wave of consolidation. “We did our consolidation in a big scale in the 1990s. We acquired more technology companies than anyone else in the 1990s. I don't think anyone else got close. Our focus continues to be on small opportunities,” Kumar told media at a press conference earlier in the day. “Consolidation for the pure sake of necessity is not something we are going to play in the next few years.”

Kumar was upbeat about CA's position today. When questioned about what CA had learned from the ongoing investigation into its accounting by the US Securities and Exchange Commission and the US Justice Department, Kumar quipped “I learnt to speak Texan”.

Kumar also commented on the ongoing SCO and Linux legal woes. “The industry has a responsibility to fix it and move on,” he said. “I don't think our customers are greatly perturbed by the issue.”

Sam Greenblatt, senior vice president and chief architect, Linux Technology Group, also said “we will not comment on any litigation in the market”. “We believe the court system in the US will prevail in find the right answer,” Greenblatt said.

Linus Torvalds, the father of Linux, is scheduled to make an appearance at CA World on Tuesday.

Siobhan Chapman travelled as a guest of Computer Associates to CA World 2003 in Las Vegas.


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