This month IBM announced it will launch two new business units: an Internet of Things business segment and a new Education segment. The Internet of Things business unit will take the spotlight first, launching immediately, while the Education unit will launch later in the year.
It is unclear exactly how the business units will be delineated; however, it seems likely that both will form new revenue generating categories adding to IBM's preexisting six units. The firm's existing business units currently include Global Technology Services, Global Business Services, Software, Systems Hardware, Global Financing and Other. In the second quarter of 2015, Global Technology Services accounted for the greatest portion of the firm's revenue at 39%.
The Internet of Things has been an ongoing initiative of IBM and a central part of industry growth in the technology sector. In March, IBM announced it will spend $3 billion to invest in capabilities for the Internet of Things. Now the firm has launched the entire unit devoted to the initiative and appointed a new director, Harriet Green, to lead developments in the division.
- Jeff Ubben Undervalued Stocks
- Jeff Ubben Top Growth Companies
- Jeff Ubben High Yield stocks
- Warren Buffett Undervalued Stocks
- Warren Buffett Top Growth Companies
- Warren Buffett High Yield stocks
IBM has extensive resources with which to develop this business unit. It will be centered around a cloud-based open platform for clients to utilize when developing Internet of Things solutions. The business unit will also leverage IBM's Watson capabilities as well as its big data analytics.
Within its Internet of Things initiative, IBM will also focus on automotive data connectivity and solutions. Automotive data connectivity has numerous opportunities when combined with Internet of Things solutions including alerting drivers of car repair needs, providing driving routes and helping to identify available parking spots. IBM's capabilities and developments in automotive Internet of Things connectivity will substantially help it to build and expand strong partnerships with automotive manufacturers.
IBM's market position and the industry's demand for Internet of Things connectivity are likely to make the new business unit a huge success. A recent survey by International Data Corporation noted that the majority of technology respondents have deployed or plan to deploy Internet of Things connectivity solutions. These companies are eager to grow and develop their Internet of Things solutions and have devoted substantial capital to this area of their business. The survey further notes that the healthcare industry currently leads in Internet of Things connectivity followed by transportation, two specific sectors where IBM has significant experience.
Many investment managers have bought IBM, and it is a favorite of Warren Buffett ( Trades , Portfolio ). Buffett currently owns 8.12% of the company's outstanding shares accounting for 11.82% of his total assets. For investors, IBM's newly formed Internet of Things business unit will be of specific interest in the company's third quarter earnings report tentatively scheduled for Oct. 19. As the business unit further develops, it will likely add substantially to the firm's value and share price.
About GuruFocus: GuruFocus.com tracks the stocks picks and portfolio holdings of the world's best investors. This value investing site offers stock screeners and valuation tools. And publishes daily articles tracking the latest moves of the world's best investors. GuruFocus also provides promising stock ideas in 3 monthly newsletters sent to Premium Members .
This article first appeared on GuruFocus .