International Business Machines Corp.(IBM) commenced a new Power Systems development laboratory in Taiwan. This new facility will be IBM’s first research center outside the US.
The new facility will enhance IBM’s presence in Taiwan by lending the company’s expertise including design capabilities in electrical, mechanical, thermal and firmware, as well as augmentation of skills in customer services, industry domain proficiency and management.
IBM has been investing heavily in the Power Systems segment to make its presence felt and has already committed roughly $3.2 billion over the past four years. Further, IBM has introduced work-load optimized systems, which cater to the emerging business models such as smart electrical grids, real-time analytics in financial markets and healthcare, mobile telecommunications and improved traffic systems.
IBM has benefited from investments in emerging markets. In 2010, IBM generated 29.0% of its total systems revenues from these markets. The company expects the markets to grow at least 40% by 2015.
According to research firm IDC, IBM had a 53.9% market share in the global UNIX server segment in the fourth quarter of 2010. During the quarter, IBM’s Power Systems market share increased 5.9 points, outpacing its nearest competitor by more than 30%.
During the fourth quarter, IBM Power Systems was positively impacted by an addition of approximately 400 new customers who migrated from its competitor systems. Among those migrated customers, 235 were from Oracle Inc. (ORCL) and 135 from Hewlett-Packard Company (HPQ). Additionally, during fiscal 2010, almost 1200 customers chose IBM over its peers.
IBM continues to gain share in the emerging markets especially in the Asia-Pacific region and the move to open a Power Systems research and development facility in Taiwan accentuates the fact that IBM has identified a specific growth strategy for these emerging markets.
We are also optimistic about other recent initiatives in emerging markets, including a $38 million investment to build a new IBM Asia-Pacific Cloud Computing Data Center in Singapore. We believe this would help it to exploit the potential of cloud computing through its comprehensive solutions and services. IBM has also expanded its operations in Mexico.
IBM is experiencing strong revenue growth across all geographical regions, coupled with robust growth in emerging markets worldwide. IBM expects these growing markets to drive revenues and increase growth in 2011 and beyond.
All these positives notwithstanding, we have a Neutral recommendation on IBM due to currency fluctuations, European weaknesses, decreased service contract signings, slower-than-expected IT spending growth and increasing competition from Microsoft Corp. (MSFT), Hewlett Packard Co. and EMC Corp (EMC).
We currently have a Zacks #3 Rank for IBM, which translates into a Hold rating over the next 1-3 months.
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