IBM Purges PLM

Is it possible to cut your way to growth? IBM (NYSE: IBM  ) will try. This week, Big Blue sold sales and client support operations related to Dassault Systems' product lifecycle management (PLM) software for roughly $600 million in cash.

For Dassault, the deal brings key assets that had been managed by IBM in-house. For IBM, the deal trades a nonessential piece of its business for greater liquidity.

That's the theory, anyway. Yet PLM is important technology, a well-established method for managing the creation and introduction of large-scale products and related manufacturing operations -- precisely the sort of complex project that IBM manages via its services arm.

Importantly, the deal doesn't require Big Blue to walk away from PLM services gigs. Instead, Dassault joins SAP (NYSE: SAP  ) and NetApp (Nasdaq: NTAP  ) , among others, as an IBM Global Alliance Partner, clearing the way for the two to cooperate on large assignments when doing so makes sense.

What changes is account control, and that's key for Dassault. The French company derives a large portion of revenue from global manufacturers such as Boeing (NYSE: BA  ) and Toyota (NYSE: TM  ) . Big Blue's PLM assets will add diversity -- including more than 1,000 new accounts, Bloomberg reports.

This isn't the first time that IBM has sold assets; Lenovo now operates what was Big Blue's PC business. Nor is it uncommon for Big Blue to cut expenses. Lower operating costs helped IBM boost gross margin and deliver an 18% gain in third-quarter earnings per share.

That's no small feat, and it means Big Blue's diet plan is working. But there are only so many assets to sell before management begins to cut businesses that really do matter. Don't let these disposals become a habit, IBM.

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Fool contributor Tim Beyers is a member of the market-beating Motley Fool Rule Breakers stock-picking team. He owned shares of IBM at the time of publication. Dassault Systems is a Motley Fool Stock Advisor recommendation. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy has never entered into an alliance. Is it missing out?


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  • Report this Comment On October 28, 2009, at 3:45 PM, RaceCoach wrote:

    PLM was an appendage to IBM, not a core competency. When Dassault took over the indirect reseller channel from IBM three years ago, the writing was on the wall. Now that the indirect business is under control (under Dassault), the next logical step was for Dassault to assume all direct business. No real surprise to me.

  • Report this Comment On October 28, 2009, at 5:17 PM, PeterBT wrote:

    RaceCoach is right on. Dassault has been taking over the richest pieces of the business for many years making it increasingly difficult to find new opportunities. Even when opportunities were found, Dassault took them away if they weren't on a named account list. The hoped for IBM goal is to preserve the profitable services revenue in this space, but Dassault now controls the talented IBM PLM business development team which will challenge even this possibility.

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