IBM/Telelogic – Acquisition Update

What Happened?

The European Union’s Competition Commissioner, Neelie Kroes, announced that the initial investigation of the IBM/Telelogic deal has been completed and that the merger “could have adverse effects on competition” within the market for software modeling tools. As a result the EU has begun a second phase of investigation on October 3, 2007 to further examine the merger’s possible implications on the market.

This second phase of the review process gives the Competition Commission 90 working days to complete its examination, meaning clearance of the merger might not occur until February 20, 2008. In addition, if the Commission deems it necessary, a decision can be delayed an additional 35 working days, potentially pushing their judgment back until at least April 9, 2008!

In response to this announcement, IBM’s wholly-owned Swedish subsidiary, Watchtower AB, extended the acceptance period in regards to its cash tender offer to Telelogic share holders for the second time since originally declaring their intent to acquire Telelogic. Originally extended to October 9, the acceptance period’s deadline has now been set for 17:00 CET (11:00 EST) on December 7, 2007.

VDC’s View

VDC wonders if Watchtower’s date, well before that set by the EU, may help IBM to encourage a decision by the EU within the 2007 calendar year. Based on VDC’s market research, Telelogic’s 2006 acquisition of I-Logix has left IBM and Telelogic as the leading vendors of software modeling tools in the embedded market. While the merger completed and passed the antitrust review process in the United States, VDC believes that the EU Competition Commission’s decision may rest on IBM’s ultimate plans for the two companies’ competing offerings and the fate of Telelogic’s 1,100+ worldwide employees, 41% of whom are based in the EU.

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Embedded Systems Manufacturer Indicate Future Commitment to the Linux Operating System

Natick, Massachusetts – October 3, 2007 – Recently published research by Venture Development Corporation (VDC) indicates that a significant portion of embedded software and systems engineering teams continue to adopt Linux as their primary target operating system. Furthermore, the research also suggests that this migration may be lasting, as the majority of current Linux users surveyed plan to use Linux again as their primary operating system on future projects.

Linux remains an attractive operating system choice for a range of embedded development teams for a number of reasons, including: royalty free run-time costs, advanced networking capabilities and technical features, the large base of engineers familiar with the Linux operating system, as well as many other factors. These and other findings from VDC’s Linux in the Embedded Systems Market report continue to suggest that Linux will remain one of the leading operating system choices into the future.

Linux has proven itself to be well suited for a wide range of applications across various industries, and continues to gain market share, despite not being particularly well matched for certain embedded applications types,” according to Matt Volckmann, Senior Analyst/Program Manager with VDC’s Embedded Software Practice. “Changes in the way that systems are designed will also allow Linux to continue to penetrate into segments of the market where the lack of capability was previously perceived as a barrier.”

A more complex question is how opportunities for commercial solution suppliers will progress given the promise of more widespread Linux adoption in the embedded market. Currently, a majority of Linux projects do not obtain their Linux distributions from commercial suppliers. However, innovation within embedded Linux to date has relied heavily on support from commercial suppliers like MontaVista and others to make Linux a more viable operating system option within the embedded market. “At the root of most of the challenges faced by commercial suppliers is the question of how to bring significant additional value to an operating system that is freely available, continually improving, increasingly supported by embedded system/component suppliers, and in demand from companies interested in decreasing their overall development costs and/or bill of materials,” says Volckmann.

While Linux has found its way into a number of embedded industries, one of the key opportunities for Linux over the next several years will be in the mobile phone market, where Linux is quickly becoming a leading application operating system, and manufacturers and telecom operators are rallying to drive more comprehensive, industry-specific Linux-based standards. VDC’s Linux in the Embedded Systems Market report, released in September 2007, explores these and other critical issues within the embedded Linux market.

For access to the full article, click here.