"Why move Waze out of Israel?"

Gartner VP research Andrew Neff tells "Globes" that Israeli will continue being a magnet for high-tech acquisitions.

"So long as good ideas come out of Israel, there will be acquisitions," Gartner VP research and Invest analyst Andrew Neff told "Globes" in an interview. In the past few years, big technology companies, such as IBM Corporation (NYSE: IBM), Hewlett Packard Co. (NYSE: HPQ), Oracle Corporation (Nasdaq: ORCL), and EMC Corporation (NYSE: EMC), have acquired many Israeli companies. Neff believes that this trend will continue.

"These companies don’t say, 'Let's look for companies from Israel,' but they look for good ideas, and happen to find them here," says Neff. "It's important to note that the companies, when they look for ideas to acquire, don’t look at what is important now, but what they think will be important in five years. That is the distinguishing factor on the issue."

Neff cites navigation app operator Waze Ltd., which is considered a candidate for sale at a value of hundreds of millions of dollars. "I don’t know if Waze will ultimately be acquired, but I don’t understand the reports that they will want to move its development operations from Israel if it is acquired, because the environment here is very innovative," he says.

The Gartner Invest unit carries out research in a different way from Gartner's regular activity. Gartner Invest was established five years ago and its clientele are investment institutions. Its analysts review companies, but in contrast to an investment bank, they do not give "Buy" or "Sell" recommendations on shares.

Nonetheless, Neff favorably mentions two of the companies in his research field - IBM and EMC. "These are the companies with the best strategic position," he says. "One of the interesting things is the storage market, which has grown very fast. The obvious reason is the increase in the amount of data, but if enterprises do not what the quantity to increase, they would limit it. Alongside the increase in data is the growth of analytics - data analysis tools. Another important factor is the rise in SSD (flash-based memory in computing systems) installations, which make it possible to get data faster. Today, enterprises see data differently. If, until a few years ago, the main focus was on data cost control and cost management, now the focus is on monetization, and data is seen as an asset. As a result, the storage market will grow by 8% a year, and EMC is well positioned in it, and focuses on different elements in it. It is also a company with an effective acquisitions strategy."

As for IBM, Neff says that it is a "very interesting" company. "There is a point which is not sufficiently appreciated, and it is IBM's ability to sell a solution, not a component. When looking at IBM's presentation, in contrast to its rivals, you barely see the device; it sells a complete solution which improves customers' profit margins. Another thing is that the company knows what to do, which is important, but more than that, it also knows what not to do. This is in contrast to HP, for example, which does everything. For example, IBM got out of the PC market."

Neff is also pleased by IBM's acquisitions strategy. "The company changed its strategy in the sector several years ago. Usually, companies acquire big companies because they believe that otherwise the acquisition will have no effect. IBM prefers to acquire several small companies instead of one big one. When you acquire a big and mature company, integration is hard, whereas the acquisition of companies in the early growth stage has potential, and if the integration is successful, the acquisition adds to growth, and not just headaches," he says.

Earlier this week, "Globes" reported that IBM Israel is firing 100 employees as a streamlining measure.

Neff believes that mergers and acquisitions in high tech will continue, and that IBM, Oracle, and EMC will be the most active players in the market. "The question mark is over HP, which is old school regarding big acquisitions, and whether it can make its acquisitions strategy more efficient," he says.

Joint hardware-software is the key

Neff sees several key trends which are affecting the hardware and IT market. The main trend is mobility, along with the growth in data quantity and storage, security, and focus on the customer. "I cover hardware, but very few companies focus on it," he says. "For example, Apple is a hardware company, but the key to its success is software. The same is true for EMC."

Neff says that computer products, excluding software, tend to turn into commodities and competition intensifies. He cites as examples the PC and servers markets, which matured and where the added value switched to virtualization.

Do you predict that smartphones and tables will become commodities?

Neff: "Every industry matures. Software provides less differentiation, which creates risk. The tablets market is very new and is at the early stage. We expect more innovation in it, as well as in software and hardware. At the same time, there is expansion in low-end tablets and smartphones, and the most influential companies are Apple and Samsung."

Apple Inc. (Nasdaq: AAPL) is at the center of the tax debate, which has reached the US Senate. "I think that the issue will blow over," Neff predicts. "If Apple didn’t do what it does, its shareholders would complain that it's paying too much in taxes. It isn't the only company which takes steps to minimize its tax expense in line with the law."

Apple's share price touched $700 in September, fell 45%, and then recovered slightly. What's next?

"Apple's main challenge is to continue to innovate in the post-Steve Jobs era. Under Jobs, it was considered an innovative company, but Samsung is now seen as more innovative in certain fields. It is a well-known phenomenon at companies after the departure of a charismatic CEO or founder, and it happened before at Sony and Disney."

Published by Globes [online], Israel business news - www.globes-online.com - on June 4, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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