IBM Selling Operations to Dassault

International Business Machines (IBM - Analyst Report) has agreed to sell off its sales and client support operations to Dassault Systèmes, a leading provider of 3D software and Product Lifecycle Management (PLM) solutions. The acquisition will fetch approximately $600 million.
 
Under the agreement, Dassault will acquire IBM’s PLM software application portfolio as well as customer contracts and related assets. The transaction is expected to be completed by the first half of 2010.
 
With this strategic partnership, IBM will significantly expand its 25-year relationship with Dassault. Moreover, the integration of IBM’s PLM sales operations into Dassault’s business will encourage growth, improve customer service and expand channel efficiency.
 
Through this integration, IBM plans to focus on its PLM infrastructure leveraging IBM's middleware offerings with Websphere (SOA), Information Management (DB2), Tivoli, Rational, Lotus Domino and Sametime.
 
IBM also plans to establish DS as an IBM Global Alliance Partner and expand their services partnership. To expand its PLM products, IBM has earlier entered into various partnerships with MSC Software, ProStep, Par Technology Corp. (PTC - Snapshot Report) and Siemens (SI - Analyst Report).
 
IBM is one of the leaders in PLM solutions in terms of both revenues and services offered. However, the company has been focusing on its core competency for quite a long time, which has helped drive margins and serve customers better.
 
Thus, the company planned to exit the PLM sales and client support operations. Although this will lead to some revenue loss, we feel positive about the impact on margins. We believe IBM’s strong growth reflects the shift in its corporate philosophy to offering higher value, productivity initiatives that provide longer-term benefits, as well as its transformation to a globally integrated enterprise.
 
We have a Neutral rating on IBM.