International Business Machines Corp.
) latest acquisition of SoftLayer Technologies Inc. is expected
to strengthen its cloud services portfolio. The acquisition will
allow IBM to upsell and cross sell its cloud-based products and
services to SoftLayer's customers while gaining new ones.
IBM will integrate SoftLayer into its new cloud services
division - IBM SmartCloud - which provides a wide range of
cloud-based products and services to business enterprises. The
acquisition will also strengthen IBM's 100 strong
software-as-a-service (SaaS) business solutions.
The combined services will provide the infrastructure for
implementing cloud computing, but in a cost effective way. It
will also accelerate the integration of public and private
clouds. Moreover, it will provide customized privacy, data
security and computing services to its clients.
IBM is seeing strong demand for its cloud-based solutions,
which is indicated by the fact that its cloud revenues increased
80.0% in 2012. Buoyed by this robust demand, IBM expects to earn
$7 billion in revenues from cloud-based services by 2015-end.
Moreover, IBM expects to spend about $20 billion on
acquisitions through 2015. The company is looking for strategic
acquisitions to remain competitive and gain from the increased
spending on cloud-based services. Gartner expects global spending
on public cloud services to grow at a CAGR of 17.7% (2011-2016).
It also expects the total market to grow from $76.9 billion in
2010 to $210 billion in 2016.
Thus, we believe that the IT major remains well positioned for
long-term growth based on its four key growth initiatives:
smarter planet, growth markets, business analytics and cloud
computing, which are expected to deliver at least $50 billion in
revenues by fiscal 2015. We also believe that IBM's strong
product pipeline, expansion into emerging markets and continuous
acquisitions will help it to achieve its growth target, going
However, we remain cautious on the overall IT spending
environment and believe that macroeconomic concerns will continue
to hurt IBM's growth in the near term. Increasing competition
) is an additional headwind for the company.
Currently, IBM has a Zacks Rank #3 (Hold).
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