Q&A: IBM's Steve Mills on CA, the Sun/Microsoft pact, outsourcing

The head of IBM's Software Group calls CA's legal problems 'pretty serious'

HAWTHORNE, N.Y. -- Steve Mills, senior vice president and group executive in charge of IBM's $14 billion software business, spoke with Computerworld yesterday about recent developments on the competitive landscape, including the government investigation of rival Computer Associates International Inc. and the accord between Sun Microsystems Inc. and Microsoft Corp.
Excerpts from the Mills interview follow. A later interview with CA's Mark Barrenechea, senior vice president of product development, is also available online (see story).
What do you make of CA's legal problems, especially now that CEO Sanjay Kumar is under scrutiny? All of these things are focused on individuals. If there's a management change, I would suspect they would continue to deliver the products they're delivering now. That's not likely to change in any way. The question is, Will the players change? That's anybody's guess, but it obviously appears pretty serious.
Would a change of players have an impact on IBM in any way? We deliver a very rich set of products to replace CA products, so customers who were losing confidence in the company could certainly turn to IBM for alternatives.
Are you using CA's legal problems as a sales tool to lure CA users to IBM? CA does enough on their own, independent of what the government is doing, to create opportunities for us. We don't need the Department of Justice to help us build that business. CA has a very mixed reputation with customers. CA tends not to make new investments in any of these mainframe-based products. There's a lack of add-ons and features and updates -- they don't keep pace particularly well. We find many businesses want to get off of CA tools.

Steve Mills, head of IBM's Software Group
Steve Mills, head of IBM's Software Group

Do you think you beat CA to the punch by acquiring Candle Corp. (see story)? Candle is a major provider of tooling on the mainframe. The disposition of so many companies that were started up in this area has not necessarily favored IBM. They'd get acquired by Computer Associates, and Computer Associates just wants to charge the customer a lot of money and not give them any incremental value. We've watched this movie replay itself over and over again. So we have a lot of concerns about what happens to some of these modest-size independent providers of tooling for the mainframe.
We've been increasing our mainframe-related software spending, in some cases to provide an alternative to those vendors that were overcharging customers for a utility-type function. So the Candle acquisition obviously very much falls into that category of helping to reinforce our long-term commitment to the mainframe.
What was the genesis of the deal? Who approached whom? We've had on-and-off conversations with Candle over the years. It's a privately held company, so it was really [Candle chairman and CEO] Aubrey [Chernick's] call as to what his long-term plans and desires were. I think he had reached the point where the option to sell the company [appeared to] be a good thing to do.
Will this result in layoffs at Candle? It's been our habit to look at finding ways to offer people jobs elsewhere in IBM. You find that, practically speaking, most of the general and administrative resources decide to take a [severance] package out. We'll have a small number of administrative roles, but far fewer than are there today. It's not a big general and administrative staff anyway, because it's a private company. Marketing, sales, development -- those people are all needed.
What's your reaction to the recent Sun/Microsoft settlement and agreement to improve integration of their products? Much more has been written about this settlement than either company has said about it. There's been a lot of speculation, but I don't see that either company has come forward with any specifics on a declared relationship that they're going to have going forward. This was a bury-the-hatchet settlement. Two billion dollars is a lot of money to most people, but given how much money Microsoft has, I'm not sure they view it as a big hit to their financials. The money probably means more to Sun than it does to Microsoft.
I don't know whether this really means anything at all. They have very different business interests: Sun is really a hardware company with a little bit of software that they dabble in. Sun's problems are quite significant. I'm not sure Microsoft feels they need Sun for anything. I think Sun's commitment to the Intel platform has always been a bit questionable and sketchy. I don't see anything here that's a unique collaboration that would make any difference.
Does it make any difference to you whether Oracle Corp. is successful in acquiring PeopleSoft Inc.? Oracle is a competitor. So if you ask us what is our preference, our preference would be that they not acquire PeopleSoft, because in doing so there's a piece of our business that will be impacted. We have a good relationship with PeopleSoft around DB2; it's not likely we're going to have a good relationship with Oracle around DB2. We don't want to lose that part of our business.
Given your commitment to Linux, would it make strategic sense for you to take the route Novell Inc. took with its acquisition of SUSE Linux AG and acquire a Linux distributor of your own -- say, Red Hat Inc.? We've chosen very explicitly not to be a Linux distributor. We decided that the way the Linux community was evolving, that IBM being a distributor was not required for Linux to be successful, and it probably wouldn't be helpful for IBM to be a distributor. Those are very tough business models. Red Hat has a lot of market cap -- they don't have a lot of business results. It's very challenging to try to build a company around what's essentially a free product.
Given the controversy around offshore outsourcing, what's your view on the merit of sending software development work overseas? Let me comment on what I manage. I don't look to low-cost software development locations as a requirement for me to run the Software Group business. In a commercial software business, you're spending less than 20% of your revenue on development. So building the right product is much more important than whether or not a developer costs you less money. You build the right product by having your technical teams involved with customers every day. The best products are built with customers, not back in a laboratory. So I need people who have deep skills in the technologies we produce.
We've always done development globally because it's given us an anchor point for local market entry. We're doing software development all over the world, and it gives us great insight into local markets. My interest in India and China begins with local market access. Having a lab in each country gives me an ability to grow my software business in those two countries.
How important is it to you to attract foreign talent to the U.S., and how difficult is it to do that with the current H-1B visa cap? We do go through that process to have people come in. It would be nice if the government made it easier for us to move skills around. That's got its own political controversy associated with it as well. With appropriate controls, you really want to encourage the best and brightest to move here.
Do you have any CEO aspirations? I am a CEO [of IBM's Software Group]. I have a spectacular job. I have more software products than any company in the industry, I have more products than Microsoft. Nobody has more latitude to do more things than I do. Anything else would be a come-down. It wouldn't be as much fun.

Copyright © 2004 IDG Communications, Inc.

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