Analysts: IBM to gain range of security services with ISS buy

IBM plans to buy Internet Security Systems for $1.3B

IBM's planned purchase of Internet Security Systems Inc. will add a range of network security and managed services capabilities to its current range of identity and access management products, analysts said today.

IBM this morning announced plans to acquire Atlanta-based ISS in an all-cash deal worth $1.3 billion -- the largest acquisition for IBM since its purchase of PricewaterhouseCoopers in 2002.

"The acquisition is significant and supports our strategic priorities" in the security market, Val Rahmani, IBM's general manager of infrastructure management services, said at a news conference. The acquisition will help IBM deliver a range of "preemptive" and "scalable" products while bolstering the company's presence in managed security, she said.

With 2005 revenue of $300 million, publicly traded ISS is one of the largest providers of network security products and managed security services in the industry. It sells a range of intrusion-prevention, intrusion-detection and so-called unified threat management appliances under the Proventia brand name.

The company also offers a range of services to help companies manage their firewalls and intrusion-detection and -prevention systems. Among ISS's better-known services is its X-Force Threat Analysis, which uses a global network of data centers to give customers advance intelligence on impending threats and attacks.

ISS claims more than 11,000 worldwide customers, including 17 of the largest banks, 11 large public insurance companies and more than a dozen national governments.

The purchase would make IBM a one-stop shop for enterprise security needs, said Paul Stamp, an analyst at Cambridge, Mass.-based Forrester Research Inc. "It will give them arguably the broadest security suite" among vendors, he said.

The move represents an evolution in thinking at IBM, said Pete Lindstrom, an analyst at Spire Security LLC in Malvern, Pa. After studiously staying away from network security products for several years, IBM appears to be changing course a bit with this purchase, he said.

"IBM hasn't expressed much interest in this active [network] monitoring space," choosing instead to focus on identity and access management technologies, he said. "I guess they couldn't ignore the growth in this market," he added.

John Pescatore, an analyst at Stamford, Conn.-based Gartner Inc., said that parts of ISS's business make sense for IBM -- while others do not.

"IBM acquiring the managed services part of ISS makes sense," Pescatore said. "ISS did a pretty good job of it" and has been holding on to its share of the overall market for some time. Acquiring that portion of ISS's business should help IBM considerably bolster its own capabilities in the market, he said.

However, ISS's full range of network security products makes little sense for IBM, especially because the company appeared to have walked away from the segment a few years ago, Pescatore said. "IBM is really strong in the ID and access management side of security, and that is totally different from network security."

With the ISS purchase, IBM will find itself suddenly in competition with well-established vendors of network security products, including Cisco Systems Inc., Enterasys Networks Inc. and Juniper Networks Inc., Pescatore said. "It just doesn't make sense for IBM."

IBM's move fits with its enterprise services and business process outsourcing focus, said Jon Oltsik, an analyst at Enterprise Strategy Group Inc. in Milford, Mass. "The Proventia stuff is sort of a throw-away in this deal," he said. "Other than the existing installed base, it is a small piece of the deal."

Some ISS customers are likely to be upset at the company's "loss of independence as a stand-alone vendor," Stamp said. "There are some who are likely to have chosen ISS because they valued their independence from a larger company whose No. 1 priority maybe isn't necessarily security."

Upon completion of the deal, ISS's operations will become a business unit in IBM's Global Technology Services business. The company's software products will be integrated with IBM's Tivoli management suite, Rahmani said.

Copyright © 2006 IDG Communications, Inc.

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