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IBM – the “True” #1 Global Enterprise Software Vendor

According to a recent report, the global enterprise software market grew by 8.5% in 2010 to reach $245 billion. Microsoft (NASDAQ:MSFT) held on to its position as the largest enterprise software company with a 22.4% market share, driven largely by virtue of its Windows 7 sales. IBM (NYSE:IBM) came in second with a 10.4% share followed closely by Oracle (NASDAQ:ORCL) at a 9.8% share.

However, barring Microsoft's sales to consumers (which Gartner accounts for in its report), IBM would have been the top global enterprise software vendor, the report noted.

We currently value Microsoft Windows (including both desktop and server versions) and Office combined at $164 billion, meaning that this segment represents nearly 70% of our $27.77 price estimate for Microsoft stock . On the other hand, our valuation for IBM's middleware software stands at $101 billion, about 45% of our $185 price estimate for IBM stock .

IBM Expanded Software Application Offerings as Part of Smarter Planet Initiatives

IBM sells its middleware software exclusively to enterprises and partners as opposed to Microsoft which sells its Windows operating system and Office software to consumers as well. According to Gartner, IBM "would be the No. 1 enterprise software vendor if Gartner did not count consumer sales of Microsoft's Office and operating systems".

IBM's software revenue grew by 5.7% in 2010 reaching over $25 billion. This grow was largely due to increased sales of IBM's WebSphere, Tivoli, Information Management, Operating Systems and Rational brands as the company expanded dramatically into applications with a focus on e-commerce, marketing and sales as part of its Smarter Planet initiatives.

We have previously discussed how IBM is pushing its middleware software sales through its various Smarter Planet initiatives (see IBM Smells Opportunity in CRM with Launch of Smarter Commerce Initiatives , IBM Promotes Packages for Smarter City Services & Centralized Software Management).

We currently project that IBM's new middleware software license revenues will increase from an estimated $5.5 billion in 2010 to over $10 billion by the end of our forecast period. We believe that a higher than expected growth in middleware software sales, as a result of IBM's recent push in this segment, could result in a measurable upside to our $185 price estimate for IBM's stock.

See our full analysis of IBM stock here

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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