IT giant
International Business Machines Corp. (
IBM
)
recently announced the opening of a new branch office in Da Nang in
central Vietnam. The new office is expected to enhance IBM's
presence in Vietnam. The company already has offices in Hanoi and
Ho Chi Minh City.
The branch office will enable IBM to deliver solutions and
services to its growing clientele in the region. Presently, IBM is
providing IT support to a number of organizations in the region
including the Da Nang Government's Department of Information and
Communication.
Recently, IBM selected Da Nang as one of the participants of the
Smarter Cities Challenge program. Moreover, the company is
providing IT support to a number of verticals in the region
including manufacturing, aquaculture, hospitality, and machinery
sectors.
Vietnamis a key growth market for IBM in South-East Asia.
According to market research firm IDC, IT spending in Vietnam is
expected to grow at a rate of 19.2% in 2012 compared with a modest
growth of 8.4% in 2011. The total IT market in Vietnam is expected
to reach $3.25 billion, which will make the country the highest IT
spender in the Asia/Pacific in 2012.
We believe that IBM is well positioned to benefit from this
strong growth opportunity in Vietnam. The company is expected to
benefit from increasing adoption of cloud computing, smarter
systems and IT security going forward. According to IDC, both the
Vietnam Government and enterprises are taking steps to boost cloud
computing in the country.
Moreover, the security authentication market is projected to
increase 28.0% year over year in 2012, primarily driven by
government projects and an expanding online banking facility. IBM's
expanding relationship with the Vietnamese government places it
well to grab further opportunities in this segment going
forward.
Emerging economies (termed as growth markets by IBM) such as
Vietnam form an important pillar of IBM's long-term growth
strategy. In order to further diversify its revenue base, IBM is
expanding its operations and opening branch offices, data centers,
banking centers and research facilities not only in Vietnam but
also in Singapore, Japan, Korea and Hong Kong.
We believe that IBM will continue to pursue strategic
partnerships in the Asia-Pacific region, which will boost its
growth over the long term. We also believe that IBM's continued
focus on global expansion will provide it a significant competitive
edge over the likes of
Amazon Inc. (
AMZN
)
,
Microsoft Corp. (
MSFT
)
and
Google Inc. (
GOOG
),
as well as smaller local companies operating in any given
region.
However, we believe that most of these emerging countries of the
Asia-Pacific suffer from poor infrastructure growth,
socio-political instability and bureaucratic red-tapism (since
governments are major customers of IT services in these countries),
which could lead to aggressive bidding for contracts and delayed
decision-making, thus impacting IBM's growth trajectory.
We have a long-term Neutral recommendation on IBM. Currently,
IBM has a Zacks #3 Rank, which translates into a short-term Hold
rating.
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