Is the INTS cup half empty or half full? My initial assessment of their quarterly report saw it as half empty, but so far the market has seen it as half full.
At issue are all the acquisitions INTS has pursued so aggressively over the last few years, and the telltale signs of corporate indigestion from eating too fast. The company entered the embedded systems market by acquiring pSOS, as I recall around 1990, with obvious success. I suspect the company has done well by acquiring FlexOS from Novell two or three years ago, obtaining a nice cash cow in a niche retail market. Then, after the row with Microtec Research, a major tool supplier to INTS at the time, INTS found itself in urgent need to flesh out its embedded systems product line - especially since WIND began taking the market by "Tornado". Acquisition was the only answer, perhaps influenced by INTS own positive experiences of not only buying technology, but increasing revenues to boot. Why not? Some companies follow this path right to the top. (Computer Associates and Cisco come to mind.)
The market responded favorably last week not only to the positive spin put on the increase in product revenues, but to the announcement of a new CFO. The market believes that an experienced CFO is just what the doctor ordered to put INTS house in order. However, as reported by the Economist, acquisitions force management to discipline their managers with financial controls rather than strategic ones - an error and a primary cause of acquisitions failing. If the market understood what the academics know, it should be quaking at the thought that a new CFO is being called on to control costs, while also knowing there is no alternative. (The operative word above is "force", meaning that at this point INTS has absolutely no choice but to emphasize financial controls even though the expected outcome is disastrous.)
In general, academia is undecided about the virtue of takeovers. Acquisitions seem to work best to consolidate maturing markets, but not so well for obtaining new technology. But exceptions abound. To quote the Economist's recent (Dec 14th issue, pp 63) summary on the subject: "In takeovers as in so much else, it is possible to have your cake and eat it. All it takes is managerial genius." So far, the signs of genius management are conspicuously absent from the INTS recent quarterly earnings reports.
Allen, |
