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IBM Looks Solid

Posted on Wednesday, Oct 26th 2011

Market analysts do not foresee a steep recovery in IT spending as both the U.S. and European markets continue their struggle to come out of the economic crisis. According to RBC experts, IT spending will grow a mere 4%-5% over the year in 2011. Gartner also expects slower growth in the coming years. Their recent study estimates IT spending in 2012 to grow 3.9% over the year to $2.7 trillion in 2012. For the current year, Gartner expects IT spending to grow 5.9% over the year.

IBM’s Financials
IBM’s (NASDAQ:IBM) Q3 revenues grew 8% over the year to $26.16 billion, marginally shy of the Street’s expectations of $26.26 billion. EPS of $3.28 was ahead of the market’s target of $3.22.

By region, revenues from the Americas grew 7% over the year to $10.9 billion. EMEA region revenues grew 9% over the year to $8.0 billion, but remained flat on a constant currency basis. Asia-Pacific revenues grew 10% over the year and at 1% on a constant currency basis to $6.5 billion. Growth was driven by the emerging BRIC countries, where revenues grew 17% over the year and now represented 23% of IBM’s total geographic revenues. IBM expects the growth markets to contribute 30% of their annual revenues by the year 2015.

By segment, Global Services revenues grew 8% with Technology Services segment growing 9% to $10.3 billion and Business Services segment growing 6% over the year to $4.8 billion. Software revenues grew 13% over the year to $5.8 billion and the Systems and Technology segment’s hardware revenues grew 4% over the year to $4.5 billion. Global Financing segment revenues fell 2% over the year to $0.52 billion.

They raised their fiscal 2011 earnings expectations to at least $13.35 per share from at least the $13.25 expected earlier.

IBM’s Cloud Services
IBM has been focused on increasing their cloud service offerings. Of the $20 billion that IMB plans to spend in the next five years on acquisitions, they have already spent almost $3 billion on cloud-related acquisitions. Last year, they acquired Cast Iron and more recently, they added Toronto-based Platform Computing to the list. Platform Computing specializes in software for managing grid computing systems. And will help IMB to address the high-performance and technical computing applications such as “big data” analytics, simulation, product design, and other private cloud efforts.

As part of their cloud offerings, recently, IBM released SmartCloud services, a cloud offering expected to support over 200 million users by the end of 2012. The services launched include SmartCloud Application Services which is a new platform-as-a-service to give enterprises the cost and time savings of a cloud environment for enterprise applications while maintaining security, SmartCloud Foundation – a portfolio of cloud software and hardware that lets enterprises deploy and control clouds within their firewalls and SmartCloud Ecosystem – a set of new services for IBM partners and independent software vendors to help SMBs migrate to the cloud.

IBM’s Acquisitions
Among other acquisitions, the company recently completed the acquisition of Algorithmics to enhance their business analytics capabilities. Algorithmics’ services and software provide improved business insights at financial institutions including banks, investment, and insurance organizations. Their services help these organizations to assess risk and address regulatory challenges. The deal cost IBM $380.2 million.

Last year, IBM had acquired OpenPages, a leading provider of software that helps companies identify and manage risk and compliance activities through a single management system. Algorithmics’ acquisition will help them combine this earlier acquisition to deliver a full array of financial and operational risk technology offerings and services.

To strengthen their fraud and security offerings, they acquired i2 Limited and Q1 labs. i2 is a leading provider of intelligence analytics for crime and fraud prevention. i2’s products help clients in the public and private sectors address crime, fraud and security threats. Based in the UK, i2’s customer list spans 4,500 customers across 150 countries. Q1 Labs is a network security software firm that claims to have 32 of the Fortune 100 as their customers. Q1 reported a revenue growth of over 75% last year and had raised $34 million in funding. It looks like IBM is gearing toward integrating security services with their other software and services offerings.

IBM’s stock is trading at $180.36 with a market capitalization of $251 billion. It touched a 52-week high of $190.53 earlier this month.

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