Update: IBM buys Informix's database business for $1 billion

IBM today announced a deal to acquire Informix Corp.'s database business for $1
billion in cash, ending eight months of speculation about the fate of the troubled
Informix operations and potentially strengthening IBM in its head-to-head competition
with rival Oracle Corp.

The acquisition would provide IBM with at least 120,000 new database customers,
according to Brian Staff, vice president of marketing at Menlo Park, Calif.-based
Informix. That total accounts for roughly 13% of the Unix database and data warehousing
installed base and 5% of all database users, Staff said in an interview last week.

The deal also could help improve IBM's hand in the distributed database business,
a key strategic priority for the company. IBM recently reported that its distributed
database revenue grew 36% year-to-year in this year's first quarter, and executives
today said the Informix acquisition will greatly increase IBM's standing in
that part of the market.

The addition of Informix's database business "effectively doubles our
position in the marketplace for distributed databases," said Steve Mills,
senior vice president and group executive of IBM Software, during a teleconference.
Altogether, he added, IBM expects to have more than 500,000 database users worldwide
once the deal goes through.

The acquisition, which is due to be completed during the third quarter, will
also add more than 2,000 database developers to IBM's payroll. Calling that
a big advantage in "the war for talent" against competitors such as
Oracle, Janet Perna, general manager of IBM's data management unit, said the
company is "fighting to win. We are playing for first place."

IBM plans to integrate Informix's database operations and personnel into Perna's
division and will continue to sell Informix's products through an integrated
sales force. Likewise, IBM said it will maintain existing relationships with
Informix users and business partners, including support for all current Informix
products.

However, Perna said IBM's DB2 Universal Database will be the foundation for
future products. "No customer will be forced to migrate to DB2," Perna
said, but she added that the combined IBM-Informix sales force "will lead
with DB2 for new customer acquisitions." In addition, some Informix technologies,
such as its analytical tools, will be integrated into DB2.

The database sell-off comes as Informix is emerging from a massive corporate
restructuring. Last August, Informix split into two independent operating companies:
Informix Software, which focuses exclusively on databases, and Ascential Software
Inc., which took over responsibility for its information management applications.

Informix officials said in recent interviews that they were optimistic the
renewed focus on database technology would begin to pay off for the company.
But analysts weren't so sure, citing concerns about the number of different
database products that Informix was trying to maintain simultaneously.

"The problem with Informix was that it flip-flopped back and forth on
its market positioning," Betsy Burton, an analyst at IDC in Framingham,
Mass., said before the sale to IBM was announced. "Informix has still not
come out with a very clear strategy on how they are going to reconcile the seven
different sets of database code they now maintain," Burton said. "For
that reason, we think they're going to lose market share over the next four
years."

Larry Ellison, Oracle's chairman and chief executive officer, dismissed the deal with characteristic flair.

"What can I say?" he said, when asked about the deal during an unrelated press event Tuesday morning. "We have a billion dollars in cash. We could have bought them too but we were never really interested."

Oracle 9i, a major upgrade to Oracle's flagship database, is due to ship May 15, Ellison said. Customers who move away from Informix are more likely to switch to Oracle than DB2, in part because Oracle 9i has improved clustering features that make it more scalable than DB2, he asserted.

(Includes reporting from the IDG News Service.)