Late on the evening of October 26, IBM announced its intention to sell its "IBM sales and client support operations encompassing DS's Product Lifecycle Management (PLM) software … customer contracts and related assets" to Dassault Systèmes. Since 1982, IBM has sold and supported Dassault Systèmes CATIA and related software. The announced sale, which is expected to close in the first half of 2010, ends that relationship.

 

IBM will receive $600 million in cash for its PLM business. Approximately 700 IBM employees, including PLM general manager Al Bunshaft, will join Dassault Systèmes.

Dassault Systèmes' competitors, Siemens PLM Solutions, Parametric Technology, and Autodesk, are likely to blow the current transaction out of proportion, claiming that Dassault Systèmes has lost a major sales advantage. In reality, this deal is likely to have modest impact on both companies.

 

IBM will be shedding a relatively small part of its software business that doesn't fit with its main strategy. Steve Mills, IBM Software Group senior vice president, has made it clear for several years that IBM wants to be in the business of selling system software and middleware. It no longer wants to sell applications, such as mechanical design and manufacturing software. Sales of CATIA software in 2008 amounted to 30-35 percent of Dassault Systèmes' total revenue, according the Dassault Systèmes CEO Bernard Charlès, or between $600 and $700 million.

 

For its part, Dassault Systèmes will be able to book increased revenues from the acquisition even if software sales to IBM customers don't rise at all. IBM's gross margin on CATIA, Enovia, and related software is about 50 percent, or about $300 million. Assuming Dassault Systèmes can keep prices up, that additional $300 million will, over the next 18 months, flow to its top line.

Charlès says customers also will benefit from IBM's divesting of the PLM software organization. For historical reasons, customers currently can buy some but not all of Dassault Systèmes' PLM software from IBM. Products that aren't in IBM's price book must be bought from Dassault Systèmes directly. This administrative quirk means that many large customers must negotiate two contracts in order to buy the full line of Dassault Systèmes' PLM software.

 

There is little doubt that Dassault Systèmes would not have been as successful as it is if IBM had not sold its software on mainframes and RS-6000 workstations beginning in the 1980s. But with IBM losing enthusiasm for application software, it may not have many more new large accounts to deliver. Dassault Systèmes already decided to choose another company, CAXA, instead of IBM to represent its products in China.

By taking control of its own sales efforts, Dassault Systèmes will be better able to work with other large corporations in information technology such as Hewlett-Packard, Oracle (soon to be the owner of Sun Microsystems), Tata Consultancy, and Dell Computer. Dassault Systèmes will continue to be one of IBM's Global Alliance marketing partners, a status also enjoyed by Parametric Technology and Siemens PLM Software. The French software giant now competes on an equal basis with the other major suppliers of higher priced CAD/CAM, CAE, and PDM software.

 

The challenge for Dassault Systèmes will be winning large new accounts and mid-sized accounts that promise to grow into large accounts. Historically, the company has done well in Europe, where 46 percent of its sales are generated. But Dassault Systèmes is a laggard in the Western Hemisphere from which it derives 31 percent of its sales. In contrast PTC and Autodesk pull in 38 percent of their revenues from the Americas. A risk to investors (among many) to Dassault Systèmes investors is that former IBM employees, stripped of Big Blue's imprimatur, may not be able to close deals with corporate IT departments as well as they once did.