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Apple-IBM Deal to Offer Enterprise Apps on iPhone, iPad

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Bringing an end to a long and bitter rivalry, Apple Inc. (AAPL) and International Business Machines Corp. (IBM) recently entered into a partnership. Per the agreement, IBM will offer mobile software and services for enterprise users of Apple’s iPhone and iPad.

The deal is a big milestone for the Bring your Own Device (:BYOD) trend, which has been facing headwinds related to security and device management. The collaboration between an established software developer like IBM and a hardware maker like Apple will significantly boost enterprise’s confidence to fast adopt BYOD.

IBM will offer more than 100 applications related to analytics, Big Data, mobile device management and security software, primarily for enterprise users in retail, healthcare, banking, travel, transportation and telecommunications sectors. The company will also develop cloud services for Apple’s iOS operating system.

The partnership will help Apple to fast penetrate these industries where it faces significant competition from Blackberry (BBRY) and Microsoft’s (MSFT) Windows mobile. Apple devices are currently used by approximately 98% of Fortune 500 companies. The addition of IBM’s software expertise will boost Apple’s competitive prowess in the long run.

On the other hand, the partnership is expected to boost IBM’s position in the mobile applications market, which forms a significant part of its fast-growing software business. This will help IBM to offset revenues lost from the slow-growing hardware business. Higher adoption of Apple devices integrated with IBM applications will boost the latter’s top-line growth in the long run.

We continue to believe that IBM’s strong backlog and the divestiture of its lower-margin customer care and server business units will boost top line and profitability in 2014. Moreover, continuing investments in cloud computing, smarter planet initiatives and the analytics division will boost software and services revenues in the long run.

Simultaneously, Apple’s improving penetration into the enterprise market (where IBM has a strong customer base) will diversify its top-line growth. We believe that the upcoming iPhone 6 and the new HealthKit platform will further boost Apple’s position in the enterprise market in 2014.

IBM is set to report second-quarter 2014 results on Jul 17, while Apple is scheduled to report on Jul 22. Currently, both the companies carry a Zacks Rank #3 (Hold).

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