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Article from NYTimes.

MENLO PARK, Calif. — New York, London and Hong Kong are common addresses for blue-chip multinationals. Now Silicon Valley is, too.

From downtown San Francisco to Palo Alto, companies like American Express and Ford are opening offices and investing millions of dollars in local start-ups. This year, American Express opened a venture capital office in Facebook’s old headquarters in downtown Palo Alto. Less than three miles away, General Motors’ research lab houses full-time investment professionals, recent transplants from Detroit.

“American Express is a 162-year-old company, and this is a moment of transformation,” said Harshul Sanghi, a managing partner at American Express Ventures, the venture capital arm of the financial company. “We’re here to be a part of the fabric of innovation.”

The companies are raising their profiles in Silicon Valley at a shaky time for the broader venture capital industry. While top players like Andreessen Horowitz and Accel Partners have grown bigger, most venture capital firms are struggling with anemic returns.

The market for start-ups has also dimmed, in the wake of the sharp stock declines of Facebook, Zynga and Groupon, the once high-flying threesome that was supposed to lead the next Internet boom.

But unlike traditional venture capitalists, multinationals are less interested in profits. They are here to buy innovation — or at least get a peek at the next wave of emerging technologies.

In August, Starbucks invested $25 million in Square, the mobile payments company based in San Francisco, which will be used in the coffee chain’s stores. This year, Citi Ventures, a unit of Citigroup, invested in Plastic Jungle, an online exchange for gift cards, and Jumio, an online credit card scanner.

Banco Bilbao Vizcaya Argentaria, the large Spanish banking group, opened an office in San Francisco last year. The team, which has about $100 million to fund local start-ups, is looking for consumer applications that will help the bank create new businesses and better understand its customers.

“We are in one of the most regulated and risk-averse industries in the world, so innovation doesn’t come naturally to us,” said Jay Reinemann, the head of the BBVA office. “We want to avoid the video-rental model. We want to evolve alongside our consumers.”

The companies are hoping to tap into the entrepreneurial mind-set. Multinationals, with their huge payrolls and sprawling operations, are not as nimble as the younger upstarts. While they are rich in resources, big companies tend to be more gun-shy and usually require more time to bring a product to market.

“Companies cannot innovate as fast as start-ups; increasingly they realize they have to look outside,” said Gerald Brady, a managing director at Silicon Valley Bank, who previously led the early-stage venture arm of Siemens. “We think it’s happening a lot more than people recognize or acknowledge.”

Of the 750 corporate venture units, roughly 200 were established in the last two years, according to Global Corporate Venturing, a publication that tracks the market. In the last year, corporations participated in more than $20 billion of start-up investments.

Big business has played the role of venture capitalist before, with limited success. During the waning days of the dot-com boom, financial, media and telecommunications companies sank billions of dollars into start-ups.

The collapse was devastating. Although some managed to make money, far more burned through their cash. In 2002, Accenture, the consulting firm, scrapped its venture capital unit after taking more than $200 million in write-downs. The previous year, Wells Fargo reported $1.6 billion in losses on its venture capital investments. Dell, the computer maker, closed its venture arm in 2004 and sold its portfolio to an investment firm. (It resurrected the unit last year).

Companies say they are taking a different approach this time. Rather than making big bets across the Internet sector, investments are smaller and more selective.

“We invest with the idea that we’re a potential customer for a company,” Jon Lauckner, G.M.’s chief technology officer said. “We’re not looking to make several $5 million investments and make $10 million on each. That would be nice, but it’s not important.”

As they try to find the right start-ups, some are forging tight bonds with local firms. BBVA, for example, is an investor in 500 Startups, a venture firm that specializes in early-stage start-ups and is run by Dave McClure, a former PayPal executive.

Unilever and PepsiCo are limited partners in Physic Ventures, a venture capital firm designed to help corporate investors build commercial partnerships with portfolio companies. Both Unilever and PepsiCo have installed full-time employees in Physic’s downtown San Francisco offices.

American Express has stacked its investment team with technology veterans. Mr. Sanghi, the head of the office, has spent roughly three decades in Silicon Valley and formerly led Motorola Mobility’s venture arm. Through its network of relationships, the office has met with roughly 300 start-ups in the last six months.

The connections have started to pay off. Vinod Khosla, the head of Khosla Ventures and a co-founder of Sun Microsystems, introduced the American Express team to the executives at Ness Computing, a mobile start-up. In August, American Express partnered with Singtel, the Singapore wireless company, to invest $15 million in Ness.

Mr. Sanghi says Ness is a logical investment and a potential partner. The start-up’s application connects users to local businesses through customized search results.

“It’s trying to bring consumers and merchants together in meaningful ways,” he said. “And we’re always trying to find new ways to build value for our merchant and consumer network.”

For start-ups, a big corporate benefactor can bring resources and an established platform to promote and distribute products. Envia Systems, an electric car battery maker, picked General Motors to lead its last financing round because it wanted to have a close relationship with a major automaker, its “absolute end customer,” said Atul Kapadia, Envia’s chief executive.

Although the company received higher offers from other potential corporate investors, Envia wanted G.M.’s advice on how to build the battery so that one day it could be a standard in the company’s electric cars. After the investment, G.M. offered the start-up access to its experts and facilities in Detroit, which Envia is using.

“You want to listen to your end customer because they will help you figure out what specifications you need to get into the final product,” said Mr. Kapadia.

A marriage with corporate investors can be complicated. Besides G.M., Asahi Kasei and Asahi Glass, the Japanese auto-part makers, are also investors in Envia. They both build rival battery products for Japanese car companies.

Mr. Kapadia, who prizes their insights into Japan’s market, says his company is careful about what intellectual property information it shares with its investors. At board meetings, confidential data about Envia’s customers is discussed only at the end, so that conflicted corporate investors can easily excuse themselves.

“In our marriage, there has not been a single ethics concern, because all the expectations were hashed out in the beginning,” Mr. Kapadia said. “But I can see how this could be a land mine.”

For the big corporations, start-up investing is fraught with the same risk as traditional venture investing. Their bets might be modest, but blowups can be embarrassing and can rankle shareholders, who may see venture investing as a distraction from the core business.

OnLive, an online gaming service, offers a recent reminder.

The company was once a darling of corporate investors, with financing from the likes of Time Warner, AutoDesk, HTC and AT&T. At one point, it was valued north of $1 billion.

Despite its early promise, the start-up crashed in August, taking many in Silicon Valley by surprise. The company laid off its employees, announced a reorganization and in the process slashed the value of the shares to zero.

“It can be painful when a deal goes sour,” James Mawson, the founder of Global Corporate Venturing, said.

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Article from SFGate.

“Tech jobs are coming back after hitting bottom early this year, according to economy tracker Moody’s Analytics. The U.S. economy has added 47,000 technology jobs so far this year amid resurgent demand for tech products in Asia and Latin America.

That represents 15 percent growth in tech jobs, compared with an 11 percent jobs growth in the economy overall since the beginning of the year, according to Moody’s. Since a peak at the end of 2007, the tech industry had lost 307,000 jobs nationally in the economic downturn.

“It seems like this industry is embarking on a new growth spurt,” says Sophia Koropeckyj, a managing director for Moody’s Analytics. “Tech jobs seem to be accelerating.”

Asia and Latin America’s demand for tech products has resulted in new hiring and is one contributor to the recovery, Koropeckyj says. After slumping in the first half of 2009, global PC shipments – bread and butter of U.S. companies Hewlett-Packard, Dell and Apple – should rise 14.3 percent this year, to 352 million units, according to consultant Gartner.

Billions in government stimulus funds have spurred recent purchases by agencies and businesses, such as those building out broadband networks. Corporate and government information technology spending should rise 8.1 percent this year, to $758 billion, according to consultant Forrester Research. Already, networking gear maker Cisco Systems saw sales for its fiscal first quarter ended Oct. 30 rise 19 percent from a year earlier, to $10.75 billion.

“The first wave of growth is going through,” says Andrew Bartels, a vice-president at Forrester.

But the recovery may be uneven: During Cisco’s quarterly earnings call in November, Chief Executive Officer John Chambers mentioned several challenges the company faces, such as slower-than-expected pickup in orders from government agencies in the United States and Japan.

Recovery among Detroit’s automakers, helped by a government bailout, is driving a resurrection of related tech-sector jobs. Last year, Detroit experienced a 15 percent drop in high-tech jobs from a year earlier, according to a new study from technology industry association TechAmerica Foundation, which studied jobs and wages data for the 60 U.S. cities with the highest proportions of tech jobs.

Detroit’s was the worst drop in high-tech jobs among any of the 60 cities last year. But in a Dec. 1 blog, carmaker Chrysler announced it will hire 1,000 more engineers and other high-tech workers by the end of the first quarter of 2011. The company has hired 5,000 workers overall since emerging from bankruptcy in June 2009. In November, rival General Motors said it will hire 1,000 engineers and researchers in Michigan in the coming months to help expand its lineup of electric cars, whose sales are expected to climb.

In some technology industries, salaries are starting to inch back up again.

Information, media, and telecommunications professionals have seen their wages rally slightly this year, according to survey data from PayScale, which tracks global compensation. In 2009, high-tech salaries nationwide slipped 0.8 percent, which was less than the decline in the private sector overall, where the average salary dropped 1.4 percent, according to the TechAmerica report.

“The gap has widened. It’s significant,” says Josh James, vice president of research and industry analysis at TechAmerica. “Especially in hard times, companies are trying to cut costs, and one way to do that is to implement technology solutions.””

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Article from GigaOm.

Fundamental changes in networking and computing are shaking things up in the enterprise IT world. These changes, combined with ubiquitous broadband and new devices like smart phones and tablets, are leading to new business models, new services and shifts in corporate behavior. It’s also leading to a lot of M&A activity as companies jockey for position before the ongoing technology shift settles into the new status quo.

A report out today from Deutsche Bank lays out some of the shifts and names what it believes are the 11 most likely acquirers, calling those companies the Big 11. The bank’s Big 11 are: Apple, Cisco, Dell, EMC, Google, HP, IBM, Intel, Microsoft, Oracle and Qualcomm. They were selected because of their size, their cash balance and their willingness to make strategic acquisitions. The report talks about which companies each might acquire, but it also gives a wealth of data on the companies which comprise the Big 11 that any startup looking for a buyer on the software and infrastructure side might find worthwhile.

In addition to the information on buyers, the report goes on to explain why many deals today are valued at multiples that are so much higher than the potential revenue of the company (HP’s buy of 3PAR is a prime example of this trend):

On the other hand, the multiples paid for these companies go counter to typical expectations for valuations. All of these deals were priced at considerable premiums to forward estimates. The implication is that the larger companies believed that there were strategic benefits far in excess of the smaller companies’ near-term prospects. A common criticism of acquisitions holds that management teams of large companies try to buy revenue and earnings to offset far lower growth rates in their core businesses. This does not appear to be the case with these deals. We see this as confirming our thesis that large companies are looking to buy technology and product synergies. In all of these deals, we see larger companies either significantly building up weak product lines or looking for the ability to bundle new features into existing equipment.

Some of the 50 targets mentioned are:

  • Salesforce.com (s crm )
  • VMware
  • Adobe
  • Citrix
  • Research In Motion
  • Riverbed Technology
  • SAP
  • Atheros
  • Skyworks
  • f5 (sffiv)
  • Juniper

Each are on the list of potential candidates for different reasons associated with improving the quality and speed of delivering web-based applications and services from a cloud-based infrastructure to a multitude of devices. However, there are plenty of startups and private companies that are pioneering new technologies in these areas which are also fair game. The report doesn’t go into the content side of the business where companies like Google, Facebook, Apple, Disney, etc. are fighting for features and services to expand their reach and platforms.

Since we’re living through an enormous period of potential disruption thanks to technology, the giants in the industry find themselves playing a game of musical chairs as they seek the best seat at the table for the future. Startups and larger public companies that will help those giants fill out their offerings before the music stops are under the microscope and perhaps at the top of their valuations.”

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Article from GigaOm.

“Oracle bought Sun Microsystems, hired former HP CEO Mark Hurd and declared that as “Oracle continues to grow, we need people experienced in operating a $100 billion business,” and ever since, the technology world has waited to see what other acquisitions Larry Ellison might have up his sleeve. This past week, we saw strong reactions to the rumor that Oracle might make a bid to buy EMC, due to the acquisition’s outlandish nature and monetary mismatch. Oracle will need to more than triple its revenue to reach that $100 billion target, so anything is possible.

That said, the rumor whips up a bunch of financial questions, because EMC owns 80 percent of VMware. EMC has a market capitalization of around $43 billion, and VMware around $32 billion. Match that up with EMC’s annual revenues of around $15 billion and VMware at $2.4 billion, and it isn’t hard to figure out where most of the value is, as well as where Oracle might be able to get a good deal on the multiple leading storage platforms.

So yes, the idea of Oracle buying EMC and VMware is a little crazy. But the idea of buying EMC and not VMware is within the realm of possibility, at least on paper, with The Register estimating that the non-VMware portion of EMC could be worth as little as $7.9 billion.

This is where things get interesting. The industry appears to be pushing towards server, network and storage consolidation following the moves of HP, IBM, Cisco, and Dell. Even Oracle has pushed a complete hardware and software package with Exalogic and Exadata using technology from Sun Microsystems to deliver an integrated solution. EMC and Network Appliance remain the large pure-play storage companies that could add significant heft to a server vendor that wants to dominate integrated stacks. HP and IBM have too much product overlap, and Dell can’t afford EMC, so that leaves an opening for Oracle and Cisco.

It seems likely that Oracle could be considering an EMC-only bid. I’ve heard some speculate that the reason Oracle became so tied to NetApp for certain solutions was the fear of EMC data center account control. Make no mistake; EMC knows how to close big deals, as their revenue number proves. If the goal for Oracle is to reach $100 billion, NetApp wouldn’t help them as effectively. NetApp currently has an $18 billion dollar market cap and just over $4 billion in revenue.

With Oracle, and potentially Cisco, interested in looking at a the EMC part of the equation, there could be impetus to move this deal forward. Even though Sun had plenty of great storage technology, they never had the commercial product success and storage revenues of EMC. If consolidation between servers and storage is the future, EMC better get cozy with someone soon.”

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Article from SF Gate.

“Hewlett-Packard Co., Oracle Corp. and IBM Corp. are leading an acquisition spree that has propelled the value of U.S. technology deals 24 percent to more than $50 billion this year and broken down decades-old barriers between industries.

The companies are using purchases to become one-stop providers of products from computers to software to networking gear, rather than focusing on a niche. A plunge in computing-industry stocks last week, spurred by concerns that demand is slowing, makes some companies more affordable.

HP, Oracle, IBM, Cisco Systems Inc. and Dell Inc., with a collective $100 billion in cash, have said they plan to keep making acquisitions. Buyers will probably scoop up targets in areas such as storage, software and security, helping them cater to corporate customers building data centers to handle a Web traffic boom, said Charles King, principal analyst at research firm Pund-IT in Hayward.

“A lot of tech leaders are repositioning themselves,” said Drago Rajkovic, head of technology mergers at Barclays Capital in Menlo Park. “Tech merger and acquisition activity is going to remain very strong this year and going into next year.”

Companies have announced $51.9 billion worth of technology and Internet takeovers in the United States this year, up from $41.8 billion in the same period in 2009, according to data compiled by Bloomberg. The buyers are pursuing a vision of cloud computing, which lets customers store their software in massive data centers, rather than in the computer room down the hall. Record low borrowing costs have helped spur the deals.

To build up its data-center technology, Hewlett-Packard agreed to spend $2.35 billion last month for the money-losing Fremont storage maker 3Par Inc., after an 18-day bidding war with Dell more than tripled 3Par’s stock price. Shares of other potential targets, such as Riverbed Technology Inc., Isilon Systems Inc. and Fortinet Inc., have each climbed more than 25 percent since the bidding for 3Par was made public.

Project California

Cisco’s expansion into computing hardware has put pressure on HP, IBM and Dell, the leaders in that industry, to respond. Cisco, the world’s biggest maker of networking equipment, introduced its own line of servers in March 2009. The effort, originally code-named Project California, is beginning to gain acceptance from big customers, says Dominic Orr, chief executive officer of one of Cisco’s networking rivals, Aruba Networks Inc.

“That’s creating a lot of nervousness,” Orr said. “Nobody wants to be Californicated by Cisco.”

The acquisitions are a boon to the largest investment banks. Goldman Sachs Group Inc. has advised companies in more than 30 percent of U.S. technology deals this year, according to data compiled by Bloomberg. Morgan Stanley and Barclays Capital ranked second and third.

The price HP paid for 3Par was about 10 times the company’s revenue over the past four quarters. The premium reflected a growing urgency to use acquisitions to fuel growth and underscores the dearth of affordable runners-up.

“The public markets are pricing in premiums that, frankly, are going to prevent some deals from happening,” Cisco Senior Vice President Ned Hooper, who handles corporate business development, said. “The companies that are winning in the market are responsible players.”

Oracle, the world’s second-largest software company, snapped up almost 70 companies in the past five years. In January, it bought Sun Microsystems Inc., marking a foray into computer hardware. Last month, it used the acquisition to introduce high-end servers designed to run Oracle programs faster than competing machines.

Oracle CEO Larry Ellison has pledged to acquire more hardware companies, especially in the chip area. While HP and Dell use processors from Intel Corp. in their servers, Oracle plans to build out Sun’s proprietary chip technology.”
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Article from Seeking Alpha.

“It barely matters who Hewlett-Packard (HPQ) finds to replace Marc Hurd as CEO.

This stock is cheap on almost every measure, and should rally along with the rest of tech when his predecessor is named.
Which, by the way, could be very soon.

By now you know the story of Hurd… who left in August amid a sexual scandal.

The stock took a drubbing on his departure, down about 18 percent to the August trough. As a result, the stock is mired in questions, and has completely missed the 9.5 percent tech rally in September.
And it now trades at an ultra-low 8 times forward earnings, versus 9 times for rival Dell (DELL), and about 11 times for IBM (IBM). At this point, H-P can gain 20 percent if it can simply get to the mean PE of its two peers.
And H-P has one of the lowest StarMine intrinsic value multiples of all stocks in North America. Stocks trading at similar intrinsic value discounts in a 10-year backtest had a three-month return of 14 percent.
There’s no denying that Hurd’s exodus was a blow. He spearheaded five years of tough cost cuts at H-P that didn’t happen under his predecessors. But at this point, the fat on this one-time Silicon Valley sow is gone. So whoever takes over should have a fairly easy time making the EPS numbers.
The real challenge for the incoming CEO is growth. H-P took some early steps to address that problem in the past few weeks, with two announced deals that should bring in high-margin revenue in the future.
There’s some griping that H-P paid too much for ArcSight and 3Par. But most of that comes from IBM CEO Sam Palmisano, who is publicly reveling in H-P’s recent misery.
Let’s dispel some of the Street’s other big concerns about H-P. One is that the company is somehow rudderless. That’s hardly the case. H-P has always had some of the best lieutenants in the business, dating back to the Lew Platt regime. Don’t be surprised if an internal CEO is named.
The company will benefit if it now finds an innovation leader to take the helm – one that can help finish off the progress Hurd made in emerging markets.
Another is that H-P could make a bad CEO choice. That’s possible. But no one will know that for at least a year. What’ s more likely is HP shows great EPS numbers for the first few quarters under a new regime.
A broader worry for all of tech hardware is a consumer spending slump. It’s true, anecdotal signs are that back-to-school hasn’t been great. But the comparison period a year ago was a total barnburner. It’s hard to expect anything different.
Instead, the Street should be looking at the strengthening refresh cycle on the corporate side. Companies are replacing aging computers and servers because they no longer have a choice. That should benefit H-P all the players heading into next year.

H-P’s stock chart is not pretty. But there’s strong volume-at-price support around $37.50. At roughly $39.50, that means there’s a 1-to-3 risk reward ratio on a bet this stock closes this gap, and gets to $45.50.”

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Article from SF Gate.

“Hewlett-Packard, the world’s largest PC-maker, has offered to buy Fremont’s 3Par Inc. for about $1.6 billion, topping Dell‘s bid for the maker of data-center equipment and software.

The bid of $24 a share in cash is 33 percent higher than Dell’s offer, HP said Monday in a statement. Dell offered $18 a share in cash, or about $1.15 billion, for 3Par on Aug. 16.

HP and Dell are using acquisitions to challenge Cisco Systems and IBM in the market for data-center products and services, which generate higher profits than desktop and laptop computers. 3Par sells hardware and software that make it easier and cheaper for companies to store information. Its stock rose past HP’s offer, signaling that some investors expect a bidding contest.

“One of the growth areas in technology is in the enterprise storage space,” said Joel Levington, managing director of corporate credit at Brookfield Investment Management Inc. in New York. “3Par’s products fit well in there. It’s an easy way to gain product breadth.”

HP said on a conference call that it has been working on the proposed acquisition since before the departure of Mark Hurd, who stepped down as HP’s chief executive officer on Aug. 6 after an investigation found he filed inaccurate expense reports to conceal a personal relationship with a marketing contractor.

The offer is HP’s second bid for 3Par, Dave Donatelli, who heads HP’s storage and server division, said Monday. The PC-maker has been in talks with 3Par for “some period of time,” he said, declining to comment further.

David Frink, a Dell spokesman, declined to comment. John D’Avolio, a spokesman for 3Par, didn’t immediately comment.

HP’s offer values the unprofitable 3Par at almost 2 1/2 times its worth before Dell’s bid, and at more than eight times its sales of $194.3 million in the year ended March 31. 3Par’s revenue rose 5.2 percent from 2009, and it has about 670 employees.

“It’s a very exorbitant price,” Levington said. It probably doesn’t make economic sense for Dell to counter, he said.”

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