IBM said it has agreed to buy SoftLayer Technologies Inc., in a deal aimed at beefing up the technology giant's efforts in cloud computing and taking on Amazon.com more directly in that fast-growing arena.
IBM didn't disclose financial terms, but the deal for the privately held, Dallas-based company is worth around $2 billion according to sources familiar with the transaction.
The transaction is a large bet in a string of deals by IBM aimed at adapting to a market where clients increasingly prefer to rent computer space rather than take on the burden and expense of buying their own servers, networking gear and other technology. The trend is a challenge to IBM's traditional business model, which has made billions of dollars installing, maintaining and upgrading computer systems for clients.
SoftLayer is popular with technology startups and helps fill a gap in IBM's offerings: renting space to clients on computers the clients don't own, an area dominated among others by Amazon. SoftLayer was founded in 2005, has about 21,000 customers and operates 13 data centers in the U.S., Europe and Asia.
Before the deal, IBM had found more traction offering large companies and governments so-called private clouds, systems that the companies typically own and maintain. The acquisition could help IBM compete more aggressively for small and medium-size businesses, and offer a broader range of Amazon-like "public cloud" options to large enterprises.
IBM is reorganizing its cloud offerings around SoftLayer, which will anchor a new division within IBM's big outsourcing group. The division will start offering the combined services following the close of the deal, which IBM expects in the third quarter.
Moody's Investors Service estimated last November that SoftLayer's revenue for the 12 months ended June 2012 was approximately $364 million. It estimated the company's operations burned cash after accounting for heavy 2012 capital expenditures, but projected free cash flow would be neutral in 2013.
Barclays BARC.LN -2.32% estimated that SoftLayer is on pace to generate $400 million to $500 million in revenue this year.
SoftLayer Chief Executive Lance Crosby said his company has been attracting more large customers over the last year or two. The deal with IBM will make it easier for SoftLayer to expand around the world.
IBM said it offers more than 100 types of software delivered over the Internet that help companies to manage business functions such as marketing, procurement and online stores, among other things. It recently began offering its Jeopardy-playing artificial intelligence technology Watson as a cloud solution as well.