Steve Mills was appointed senior vice president and group executive, IBM Software, in July 2000 and is responsible for shaping IBM's overall software strategy and directing IBM's $14 billion software business.

He is leading the next phase of IBM's software strategy through which IBM is delivering industry-specific middleware solutions to customers in 12 key industries. Mills spoke to Shubhendu Parth of Dataquest and Pragati Simlote of CyberMedia News about his company's plans in the software space and how significant is India's development role in IBM.


Can you throw some light on IBM's software business? Will IBM move towards being more of a software company or will remain a hardware company? What kind of mix are you looking at in the long term?

Revenue from IBM's software business stood at $16.68 billion last year. We have the world's largest software portfolio with different products that we build and deliver to the market place. Our focus is on middleware technologies and we do things that are system level technologies, focused around support integration of applications.

Thirty per cent of IBM's business is from the US thereafter its globally distributed uniformly across Europe, Asia and Latin America and so on. Our software business has been improving its rate of growth as we have been shifting the mix of our technology overtime. The branded middleware is growing double digit. The overall growth rate for software was four per cent last year and the branded key product middleware last year grew at about 10 per cent.

IBM has been a software company for many decades. You do not get to be $17 billion in software without having done it for a very long time. In software business, we are the second largest in the world. Software is the largest profit contributor to IBM. When we look at our three principal business areas - software, hardware and services, software is smallest of the three in terms of revenue and largest of the three in terms of profit. Profit from the software business is 37 per cent of IBM's total profit and 18 per cent of the total revenue.


What is your acquisition strategy? Are you looking at acquisitions in India? There was some talk about IBM may acquire the Chennai-based Polaris to counter Oracle's i-flex acquisition. What is the current status? There was also talk about IBM looking at acquiring 3i Infotech (if not Polaris). What are your comments?

Acquisitions remain part of our strategy to both add capability to our offerings as well as enhance the overall rate of growth. Over the course of the last five years, we have acquired more than 30 companies.

While acquiring a company, we don't start with where a company might be headquartered or where it does its development. We look at end-to-end architecture structure and look to buy companies that add value to that roadmap -- not only technology -- but in terms of existing customer base, go to market capabilities, skills. So we are looking across a spectrum of characteristics in terms of evaluation that we do of companies we are interested in acquiring.

Affordability also plays an important role. As we have been acquiring companies over the years, we have found that a number of companies have had some amount of development activities taking place in India. That has become a more common phenomenon for software businesses around the world. They may have a small development location in India. This is not unique to India, as we have acquired companies that have had development locations in Jerusalem, Cairo, Australia, etc.

Our approach is to look at the synergies we can get out from companies particularly as we take a smaller company globally the opportunity to expand its footprint in the marketplace by the taking the technology all around the globe as we are doing business in around 170 countries. There is an opportunity for considerable leverage and considerable incremental growth above the growing rate of the company, which it realized prior to the acquisition.

We don't comment on rumors. Pattern has been to acquire middleware infrastructure companies. So you haven't seen IBM acquiring traditional application companies. We have done a number of acquisitions this year and you have to just wait and see.

Customers worldwide are adopting service-oriented architecture (SOA) for true business value. What is IBM's SOA strategy?

SOA is a key element of IBM's software strategy. There is a significant shift taking place in the market today because businesses are rethinking their business model, becoming more horizontal in the way they operate and are more about connected processes. Therefore, we see tremendous growth of popularity of concepts surrounding SOA.

We have been in the integration business for many years. We are the largest middleware software provider and are the biggest participant in the SOA shift in the market. We have very extensive thousands of connectors and adaptors that are designed to help customers connect to the different formats of data that they have in their business as well as connect to a wide variety of applications that they have in their company. So we do native mappings to popular applications like SAP, PeopleSoft, Siebel, etc. therefore designed to make it easier for customers to integrate across their environment.

We have a very complete portfolio and will invest more than $1 billion this year around SOA. We have done more than 2,000 customer engagements in the last couple of years – the body, SOA structure, etc. On the services side of IBM's business, we have over 15,000 trained practitioners around our portfolio and are knowledgeable about how to implement SOA. This is a very big investment for us. We have teams around the world who are supporting SOA projects including a part of the India team who is supporting SOA projects and SOA specific development activities.