IBM Increases Cloud Investment

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International Business Machines Corp. (IBM) is aggressively pushing into the fast growing cloud computing market. According to Bloomberg, the IT major will spend another $1.0 billion on cloud-based software development through 2015.

In January this year, IBM announced a $1.2 billion investment aimed at building 15 data centers worldwide in addition to its already existing 25 data centers (including 13 SoftLayer data centers). The company will also invest $1.0 billion in Watson group, which will focus on developing cloud delivered big-data services to the market.

The expanded network of data centers and the further investment on software development is expected to boost IBM’s cloud market share and falling revenues.

IBM took a number of strategic steps in 2013 to boost its presence in the cloud computing market. Besides pledging its support for the OpenStack and partnering Pivotal, a division of EMC Corp. (EMC), the company acquired SoftLayer for $2.0 billion that allowed it to solidify its position in the infrastructure-as-a-service (IaaS) market.

Along with the $1.0 billion investment, IBM announced the launch of BlueMix, a platform-as-a service (PaaS) based on its open architecture. BlueMix runs on Softlayer’s global cloud platform. The PaaS allows software developers to build and manage applications that cater to different verticals such as healthcare, retail and travel, in which IBM has low presence.

After integrating Power Systems into SoftLayer’s cloud to run Watson big data services, IBM is also making middleware offerings such as WebSphere available to SoftLayer. This move will enable software developers to build hybrid cloud apps.

We believe these initiatives will improve IBM’s top-line growth, going forward. The company expects to earn $7.0 billion in revenues from cloud-based services by 2015-end.

Moreover, we believe continuing investments in cloud computing, smarter planet initiative and analytics division will boost software and services revenues, going forward. These investments are expected to deliver at least $50 billion in revenues by fiscal 2015.

However, sluggish IT spending and intensifying competition from more established players such as Amazon.com (AMZN) and Microsoft (MSFT) in the cloud computing market are the primary headwinds.

Currently, IBM has a Zacks Rank #3 (Hold).

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