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IBM Focuses on Analytics

Posted on Wednesday, Jan 25th 2012

Earlier this year, Gartner released their report on worldwide IT spending, and the numbers don’t look so good. The analyst downgraded growth expectations in 2012 from 4.6% to 3.7%, attributing the decline to continuing global recession, the euro crisis, and the impact of Thailand’s floods on hard-disk drive production. Spending on IT products and services in 2012 is now expected to grow to $3.8 trillion with spending on Telecom Services growing 2.3% over the year and amounting to $1.74 trillion. Spending on Telecom Equipment and Enterprise Software will see the highest growth of 6.9% and 6.4%, respectively, to end the year with revenues of $475 billion and $285 billion. Computing hardware spending is projected to grow 5.1% over the year to $424 billion, while IT services will see comparatively slower growth of 3.1% to $874 billion.

IBM’s Financials
Despite the weak forecasts, IBM (NASDAQ:IBM) seems to be on a roll. Their Q4 revenues grew 2% over the year to $29.5 billion, shy of the market’s expectations of $29.7 billion. EPS of $4.71 was, however, significantly ahead of the Street’s target of $4.62.

By segment, revenues from Global Services grew 3% over the year to $15.33 billion. Software revenues grew 8.7% over the year to $7.65 billion. However, the company faced challenges in the Hardware segment. Revenues from the Systems and Technology segment fell 8% over the year to $5.80 billion, and revenues from Global Financing fell 12.7% over the year to $548.0 million.

IBM ended the year with revenues growing 7% over the previous year to $106.92 billion. EPS of $15.86 also grew over previous year’s EPS by 7%.

For the current year, IBM projected annual EPS at $14.85. The market was looking for EPS of $14.78 on revenues of $109.7 billion. The Street expects current quarterly revenues of $25.2 billion with EPS of $2.66.

IBM’s Cloud and Analytics Acquisitions
IBM continued to add to their offerings through multiple acquisitions. As part of their cloud computing purchases, they recently acquired Green Hat, a provider of software testing tools on the cloud. London-based Green Hat’s offerings operate on a virtual environment to help developers test out their software application before delivery to their customers. Their tools help the developers to complete quality testing without having to build a testing lab of required hardware and software. The tool not only saves the developer the cost of the test lab, but also time required in setting up the test environment.

They also completed the acquisition of Canada-based Platform Computing, a provider of cluster, grid, and cloud management software for distributed computing environments. Their software helps organizations create, integrate, and manage shared computing environments used in both computing and data-intensive applications. IBM plans to use Platform’s tools to help develop smarter computing techniques for the future.

Last month, IBM acquired Massachusetts-based Emptoris Analytics. Emptoris is known for products that help businesses improve the efficiency of their procurement and supply chain operations through business analytics tools. Their software conducts analytical operations on spend, contract management, supplier life cycle management, and supply chain optimization. Analysts believe that acquisition of companies like Emptoris will help IBM branch out into application-like products to continue to drive growth.

For similar reasons, they also bought San Mateo–based DemandTec, a developer of cloud-based applications for retailers and marketers for $486 million. DemandTec’s applications help retailers by providing analytical tools into pricing, demand, inventory, and other market conditions.

Again, within analytics, they acquired Ireland-based Curam Software. Curam’s software helps governments improve the efficiency, effectiveness and accessibility of social programs for smarter cities. The software, primarily used by health and human services, workforce services, and social security organizations, helps deliver welfare, social insurance, and other programs by providing a consolidated view of benefits and services available across agencies. Curam’s software helps government and providers to lower program costs through analysis of this data and ensure that benefits are provided to address core issues faced by various cities.

IBM’s stock is trading at $189.98 with a market capitalization of $223.9 billion. It touched a 52-week high of $194.90 in December 2011. While economies worldwide are struggling to come back to robust growth levels, IBM is using this time to build up on their portfolio of products through multiple acquisitions. I am sure this strategy will stand them in good stead.

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