International Business Machines Corp. (IBM) recently collaborated with Serveis Informatics la Caixa, S.A. (Silk) to provide IT infrastructure, operating and management services to “la Caixa”, a Spanish bank. Additionally, the company will also manage the bank’s data centers in Cerdanyola del Valles and San Cugat, Barcelona.
“la Caixa” is expected to spend about 2 billion euro (approx $2.6 billion) for its IT budget over the next ten years, with half of the allocated amount being shared by IBM and Silk for its services to the bank.
Through the alliance with IBM, “la Caixa” is expected to make the necessary technological enhancements for further business development in Spain and expand their global footprint by incorporating the innovations in the financial sector, such as social media, mobile banking capabilities and cloud computing techniques, in its operations. The bank is expected to save 400 million euro (approx $520.0 million) during the term of the agreement.
IT spending by European companies is expected to shrink this year given the deteriorating economic conditions in the continent. As per the Corporate Executive Board (CEB), IT spending in Europe is expected to shrink 14% in 2012 compared with the year-ago increase of 20%.
However, IBM’s strong market share in the enterprise segment makes the company dependent on enterprise IT spending patterns. Therefore, the company’s results closely follow industry trends. For 2012, Gartner expects IT spending to improve to $2.7 trillion from $2.6 trillion in 2011. Though the global economic challenges have curtailed IT spending, enterprises will definitely continue their investments in IT infrastructure, in our view.
We believe that IBM will continue to benefit from its spate of new initiatives like smarter planet, business analytics and optimization, and cloud computing over the long term. It has already supported innumerable organizations with its industry-ready software and hardware solutions. Strategic acquisitions in the field of cloud computing and business analytics are likely to help the company grow over the long term. IBM’s strong balance sheet and robust cash flow enable it to acquire companies with high intellectual properties, which in turn will help IBM to stay ahead of its peers and drive both top-line and bottom-line growth.
We have a long-term Neutral recommendation on IBM and are optimistic about its strong fundamentals and robust growth prospects going forward.
However, IBM continues to face stiff competition from the likes of Hewlett Packard Co. (HPQ), Microsoft Corp. (MSFT) and Oracle Corp. (ORCL).
Currently, IBM has a Zacks #3 Rank, which implies a short-term Hold rating.
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