A post-antitrust Microsoft could come replete with some major acquisitions, an analyst speaking at Gartner Group's annual Windows conference in Los Angeles has suggested.
Amid discussions over the future of Microsoft's software and services strategy, Gartner analyst Tom Bittman predicted that Microsoft would follow the resolution of its lengthy antitrust battle with a shopping spree.
"In the first year post-antitrust, we expect Microsoft to spend $US4 billion on acquisitions," Bittman said, addressing a crowd at the group's annual conference on Windows. "There are lots of vendors that may be struggling during this bubble burst that Microsoft may take a look at."
Without putting too much weight behind his guess, Bittman said a potential acquisition target for Microsoft could be one of the Big Five management and consulting firms: Deloitte & Touche, Ernst & Young, KPMG Consulting, PricewaterhouseCoopers and Accenture (formerly Andersen Consulting).
"It's a role they need to be in if they are going to grow in the enterprise," he said.
Microsoft has announced an internal effort to grow its consulting services division. The company combined its support services and consulting business to take a more aggressive role in grabbing the lead role in major contract jobs. While consulting makes up only about 3 per cent of its total revenue, the unit is Microsoft's fastest-growing business, according to Gartner.
Bob McDowell, vice president of worldwide services at Microsoft, who will head the new division, said that the shift to consulting has become necessary as Microsoft makes its move into the high-end server market. He also noted that for Microsoft to implement its broad .Net vision successfully, customers will require a range of consulting services as they work through sometimes complex projects.
The company sees the need for a more complete set of consulting services growing so dramatically, it plans to increase its head count in the new division 20 to 30 per cent each year, from the current 13,000 employees.
While Gartner's prediction was followed by a number of disclaimers, such as the unknown outcome of Microsoft's antitrust appeal and any impact that ruling could bring, other industry watchers say they wouldn't rule out an acquisition in the consulting area.
"I think that you could definitely see them go in that direction," said Brendan Barnicle, a financial analyst with Pacific Crest Securities. "They're obviously sitting on a pile of cash."
Microsoft has about $26.9 billion in cash and $18.3 billion in investments that will likely be put to use when its antitrust battle with the Department of Justice comes to a close, according to figures from Gartner. That enables Microsoft to buy into partnerships, such as its recent $25 million loan to business-to-business software maker Commerce One, and pick up key components to build on .Net, its initiative for delivering applications and services to various types of computers over the Web.
An acquisition in the consulting business would not be the first for a major computer hardware or software company. In September 2000, Hewlett-Packard offered to buy the global consulting division of PricewaterhouseCoopers. Negotiations over an acquisition - valued at between $17 billion and $18 billion in stock - ended two months later with no deal. Since then, HP has tackled the need for a service division by expanding internally, and has commented on other potential targets such as Scient. Microsoft has also spent its share in the space, spending $385 million on a partnership with Accenture to form Avanade.
Making such a big move as acquiring a top five consulting company would be out of step with Microsoft's traditional growth strategy, some analysts argued. Typically the company has grown organically, making only small buys to move into key market segments. "They don't usually do big blockbuster acquisitions," Barnicle said.
Taking the reins of a major consulting firm could also be difficult because it would put Microsoft in the position of having to integrate its products with a variety of competing applications used by large customers. Also, analysts note, profit margins are much lower in the management and consulting industry than in software.