IBM Corp
(
IBM
) recently announced that it has agreed to acquire Green Hat, a
cloud-based software testing provider. This would mark IBM's first
acquisition in 2012. The to-be-acquired company will be integrated
into IBM's Rational Software business, which enables software
development teams to deliver efficiently and facilitate time
management in a cost effective manner.
Privately held Green Hat has headquarters in London, England and
Wilmington, Delaware. The company boasts a strong global presence
with 2000 customers who deploy Green Hat's cloud-based software
testing applications. The company's clients include bellwethers
from the telecommunications, financial services, transportation,
healthcare and energy industries.
Green Hat's applications are primarily implemented for software
testing in a cloud-based environment, thereby reducing the cost of
setting up a testing lab with software and hardware capabilities.
Recent industry reports suggest that out of the total software
development cost, more than 50% is being spent on software
testing.
Moreover, Green Hat's application accelerates the testing
process, which is a necessity for the software developers to
compete in the tablet and smartphone market in innovating new and
industry-ready software applications.
IBM, along with Green Hat, will manage software testing of
innumerable clients globally and will continue to innovate and
revolutionize the client servicing space. IBM's opportunity
pipeline with respect to new technologies, especially those related
to cloud computing continues to grow, as IBM regularly upgrades
itself with the growing needs of the industry through acquisitions
and partnerships.
Cloud computing has a number of advantages and the cost
advantage of sharing resources has resulted in its growing adoption
by businesses across various industries. However, proper management
and usage of the technology is a prerequisite.
The cloud computing market is expected to grow at aCAGR of 40.0%
from 2010 to 2015, crossing $7.0 billion in revenues by 2015. Cloud
computing leads to improved services and elevated security
requirements for companies that use it and IBM's product portfolio
is well positioned to benefit.
IBM remains a heavyweight in the cloud computing market and its
strong cash balance enables IBM to acquire companies with high
intellectual property (
IP
), which will drive further growth in upcoming quarters. With $20
billion to spend till 2015 on acquisitions, we expect IBM to
continue with its strategy of acquiring companies, which it deems
necessary to achieve its 2015 goals.
We have a long-term Neutral recommendation on IBM and are
optimistic about its strong fundamentals and robust growth
prospects going forward.
We also believe that IBM's initiatives in the smarter planet,
business analytics and optimization segments will drive long-term
growth. Besides, the ability to generate strong free cash flow,
expand margins and improve the already robust balance sheet make
the stock attractive over the long term.
However, the competitive landscape includes technology giants,
such as
Oracle Corp.
(
ORCL">ORCL
),
Hewlett-Packard Co.
(
HPQ">HPQ
),
Microsoft Corp
(
MSFT">MSFT
) and
EMC Corp
(
EMC
), all of which have joined IBM in the cloud computing market.
We currently have aZacks #3 Rank for IBM, which translates into
a short-term Hold rating.
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