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IBM and CrossWorlds have been integration partners for four years, which has enabled IBM's WebSphere e-business infrastructure products to work closely with CrossWorlds' software.
IBM intends to absorb CrossWorlds into its software group, then market and sell the company's products with a joint sales force under the WebSphere brand, said Tim Breuer, an IBM spokesman.
Analysts said the acquired technology fills holes in IBM's application server and Web services strategies.
"They really needed something in this category," said Shawn Willett, a principal analyst at Current Analysis.
Willett added that most of the Web services vendors, Microsoft and BEA Systems included, have been talking about integration as a key piece of Web services.
"By adding EAI [enterprise application integration] to WebSphere, they can better compete with Microsoft and BEA," he said.
The deal could be seen as a rescue operation for an IBM partner. CrossWorlds has yet to turn a profit since its founding in 1996, and would have needed financing within the next year to stay afloat, according to filings with the US Securities and Exchange Commission. If the company went under, CrossWorlds' customers would have to seek another vendor, potentially leaving IBM as well.
CrossWorlds makes integration software that is very specific to certain industries, IBM's Breuer said. The majority of the company's revenue comes from software sales and services in four industries: complex industrial manufacturing, process manufacturing, financial services and telecommunications.
"WebSphere is really handling transactions and integration at a horizontal level," said Breuer. "You can use the CrossWorlds software to integrate in very specific industries."
IBM announced in April that WebSphere would form the base of its Web services offerings. WebSphere is application server software, pushing the functions of other software out to network-connected users. Because it works on top of a server's operating system, but also functions as a layer of software underneath application programs, it is called middleware.
IBM has been pushing WebSphere hard, with good results: WebSphere revenue grew by 75% in the third quarter of 2001, compared with the same quarter in 2000.
CrossWorlds went public on the Nasdaq exchange in June 2000 at $10 a share, peaked three months later at about $25, then slid with the rest of the market to a closing price of $3.54 on 29 October. The company employs around 328 people.
IBM's offer values CrossWorlds at about a 30% premium over its current market value. The deal is subject to shareholder and regulatory approval, and should be complete by the first quarter of 2002, IBM said.