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IBM Penetrating Markets Beyond BRIC, Including Africa

Posted on Thursday, Jul 28th 2011

There doesn’t seem to be much stopping IBM’s performance. Since the beginning of the year, the company has been setting year-high records for their stock price. Their recent quarterly results continued to beat the market expectations and were driven by their strategy of focusing on higher-margin businesses including software and services. There couldn’t have been a better way for the company to celebrate its 100th anniversary this year.

IBM’s Financials
IBM’s (NYSE:IBM) Q2 revenue grew 12% over the year to $26.67 billion, ahead of the Street’s expectations of $25.36 billion. On a constant currency basis, revenue grew 5% over the year. The growth was driven by the Brazil, Russia, India, and China, or BRIC, markets where revenue grew 27% over the year and contributed 22% of the quarter’s revenue. EPS of $3.09 grew 18% over the year and were above the market’s target of $3.02.

By segment, Systems and Technology revenues grew 17.5% over the year and the Software division posted growth of 16.9%. Global Technology Services grew 10.9% over the year and accounted for 38% of revenue for the quarter.

For the year, IBM projected EPS of at least $13.25 compared with analyst projections of $13.31.

Emerging Market Focus
IBM has been driving growth through a focus on emerging markets. During the quarter, the company posted double-digit growth in 40 emerging markets. As part of this effort, they expanded their presence in regions like Africa, where they announced significant business agreements. They recently extended their relationship with Bharti Airtel to provide IT solutions to their employees across 16 African countries. They also entered into a strategic agreement with Commercial Bank of Ethiopia to modernize core banking systems and are collaborating with the University of Ghana to foster entrepreneurial approaches to education and R&D. IBM aims to have emerging markets contribute to 30% of revenue by 2015 and to drive half of their revenue growth with strong margin performance.

IBM’s Acquisition Strategy
Over the past 10 years, IBM has acquired more than 100 other players and is planning to spend another $20 billion in acquisitions through 2015. They are rumored to have appointed Kevin Reardon, who was part of their intellectual property team, as a new M&A head to spearhead this goal. They also have a formidable cash position of $11.7 billion at the end of the last quarter. As I said earlier, IBM should be looking at security and cyber security players in the cloud such as Qualys, Proofpoint, and Palo Alto Software.

IBM’s stock is trading at $181.35 with a market capitalization of $215.8 billion. It touched a 52-week high of $185.63 last week.

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