Logical CSI in $101m IBM deal

By ADAM GIFFORD

IBM has bought the New Zealand and Australian operations of network systems integrator Logicalis from South African listed technology company Datatec for $101 million.

IBM New Zealand managing director Nick Lambert said the company, which trades in this country as Logical CSI, was the market leader in network design and convergent technologies like VoIP (voice over internet protocol), which were increasingly of importance to customers.

"We approached Datatec. It was not as if they were offering it for sale," Lambert said.

"This provides us with a wonderful string to our bow. It is difficult to grow organically quickly enough. This gives us a great end to end solution."

He said Logical CSI's 165 staff would be incorporated into IBM Global services. Logicalis has a similar number of people across the Tasman.

The acquisition will re-establish IBM as the number two IT services company in terms of revenue when hardware is excluded. That puts it behind EDS but ahead of Telecom Advanced Solutions.

"We are still more profitable than EDS and Datacom," Lambert said. It should push IBM's total headcount past 1000. At present it is between 800 and 850, including contractors, with about 450 in the services area.

IDC research manager Graeme Muller said IBM revenues for 2003 were about the same as 2002, when it reported a profit of $31 million on turnover of $326 million, but in fact that is a major advance, as it shows the company was able to make up for the loss of revenue from the ICMS billing product, which was sold at the end of 2002.

Logical CSI has had a bewildering number of guises since its inception in 1986, being called at various times Case Communications, Dowty Communications, Cray Communications, Anite Networks and Logical Networks.

The CSI tag was added in November 2002 when Logical paid $1.125 million for the assets and operating business of Computer Systems Integrators, which had collapsed owing creditors more than $5.6 million.

CSI, which at the time was IBM's largest reseller, had in fact been owned briefly by IBM in 1997, when it had incorporated half of an established business into its Global Services division and sold the other half to industry figure Brian Heald.

Muller said Logical CSI's revenue for the year to February 28 was about $80 million.

Companies Office records show its revenue in the 11 months to the end of February last year was $52 million, on which it made a $927,000 profit.

"Logical CSI has a strong focus on security solutions, VoIP and wireless, which are all growing markets," Muller said.

"Services around consulting, integration and management of networks is growing at 7.6 per cent, compared to overall growth in the IT market of 3 per cent.

"We estimate that market segment will be worth about $250 million this year.

He said organisations were coming to see that having one integrated network could help them make costs out of their business.

Although cultural issues were always an important factor in the success of any merger, Muller said many Logical CSI staff had had close relationships with IBM.

Logical CSI is also strong in technology from network services providers such as Cisco and Nortel Networks.