According to Reuters, International Business Machines Corp. (IBM) plans to buy Storwize, a data storage company, for $140 million. The deal is expected to close by the end of July.

Based in Marlborough, Massachusetts, Storwize develops online data compression software.

To strengthen its storage product portfolio, IBM had earlier acquired XIV that positioned the company to address emerging storage opportunities, such as Web 2.0 and digital media.

IBM has been building its portfolio through strategic acquisitions, which are generating incremental revenues, strengthening its technology leadership and resulting in a more favorable mix of business. The acquisition of Storwize will enable IBM to expand further in the data storage market.

Moreover, IBM also released its new Storage and System x offerings of late, which are designed to help midsize businesses manage information, increase flexibility and reduce the cost and complexity of the IT environment.

The company has also unveiled new x86 systems that leverage IBM software and hardware to deliver optimized performance and accelerate rollouts of high-performance clusters. The company also introduced a new storage-rich server designed for clients intending to cut costs and maximize internal storage capacity.

These initiatives helped IBM gain more than 200 customers. According to the company, these customers moved critical business workloads to IBM servers and storage systems from Oracle Corp. (ORCL), Hewlett-Packard Co. (HPQ) and other competitors in the first quarter of 2010.

Since 2004, more than 5,000 companies worldwide replaced their HP, Sun Microsystems and EMC Corp. (EMC) products with energy-efficient IBM Systems and Storage.

Companies have invested in IBM’s System z, Power and System x servers as well as IBM Storage to tackle their most challenging business objectives and to reduce sprawling data center costs for labor, energy and real estate.

In the total worldwide disk storage systems market, IBM was the leader with 14.2% market share while HP held 11.7% market share during 2009, according to IDC. IBM outperformed storage software vendor EMC and HP in revenue growth in the fourth quarter of 2009, according to the new external disk storage systems market share data released by IDC.

Additionally, IBM grew its external disk storage systems revenue 9% year over year during the fourth quarter of 2009 while the overall market decreased by 0.7%. EMC was essentially flat and HP’s revenue fell 7.3% during the quarter, according to IDC.

IBM also saw gains in the Windows and Linux OS segments in 2009, including a 24% gain in Linux storage in a market that was down 4%.

For the long term, we remain positive on IBM’s high-margin recurring revenue business, new contract wins, strong portfolio of products and solutions, global expansion, increased dividend payout and share repurchases.

Although IBM stands to benefit from a strong liquidity position, operational efficiency, substantial free cash flow and earnings momentum, we are compelled to maintain our Neutral rating on the stock owing to low growth in some of the company’s segments, growing competition and the lack of near-term drivers of growth.
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