Consolidation forecasted for mgmt. vendors in 2003

A recent study by Gartner Inc. predicts that the enterprise network management market will undergo some consolidation in the next three years, which might not suit the vendors, but could result in lower price points for software buyers.

Last month's study says the poor economic conditions and glut of companies will result in the consolidation of enterprise management vendors between 2003 and 2006.

In particular, Gartner predicts that between 2003 and 2006, the consolidation of storage management companies will increase by 66 percent. Also the research firm says two-thirds of the application server management market will cease to exist. The company also says that 60 percent of current configuration management vendors will be acquired or will go out of business.

In the report, Gartner advises enterprises to push for increased service and support levels if their vendor does undergo an acquisition. And Gartner points out that the time between a vendor announcing an acquisition and closing the acquisition is the best time for customers to get good deals during new purchase and contract negotiations for software.

In fact, Gartner says, enterprises should be certain to scrutinize each vendor for financial viability before entering into a contract with them. Management start-ups may be struggling, but even vendors with cash on hand may become vulnerable to the industry giants with deeper pockets. For example, Gartner says Microsoft Corp. has more than US$40 billion in cash, IBM Corp. has $36 billion in assets, Oracle Corp. $8.5 billion in cash reserves and EMC Corp. $4 billion in cash reserves.

Other companies with financial assets include: Hewlett-Packard Co. with $11 billion in cash and cash equivalents; Veritas Software Corp. with $2.3 billion; BMC Software Inc. with $1 billion; Network Associates Inc. with $1.2 billion in assets; and Novell Inc. with $600 million in cash and cash equivalents.

Among those potentially vulnerable companies with cash are: Keynote Systems Inc. with $194 million market capitalization and $252 million in assets; Micromuse Inc. with $165 million and $180 million, respectively; and Concord Communications Inc. with $118 million market cap and $92 million in assets.

Gartner says that while the companies in the latter group have cash on hand, the competition in the network and systems management market will pose a threat to those publicly traded management vendors. The report says that in difficult times the gap between the strong vendors and the weaker players grows larger, and there are more and more examples of public companies acquiring other public companies.

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