IT giant International Business Machines Corp. (IBM) recently announced the opening of a new branch office in Da Nang in central Vietnam. The new office is expected to enhance IBM’s presence in Vietnam. The company already has offices in Hanoi and Ho Chi Minh City.
The branch office will enable IBM to deliver solutions and services to its growing clientele in the region. Presently, IBM is providing IT support to a number of organizations in the region including the Da Nang Government's Department of Information and Communication.
Recently, IBM selected Da Nang as one of the participants of the Smarter Cities Challenge program. Moreover, the company is providing IT support to a number of verticals in the region including manufacturing, aquaculture, hospitality, and machinery sectors.
Vietnamis a key growth market for IBM in South-East Asia. According to market research firm IDC, IT spending in Vietnam is expected to grow at a rate of 19.2% in 2012 compared with a modest growth of 8.4% in 2011. The total IT market in Vietnam is expected to reach $3.25 billion, which will make the country the highest IT spender in the Asia/Pacific in 2012.
We believe that IBM is well positioned to benefit from this strong growth opportunity in Vietnam. The company is expected to benefit from increasing adoption of cloud computing, smarter systems and IT security going forward. According to IDC, both the Vietnam Government and enterprises are taking steps to boost cloud computing in the country.
Moreover, the security authentication market is projected to increase 28.0% year over year in 2012, primarily driven by government projects and an expanding online banking facility. IBM’s expanding relationship with the Vietnamese government places it well to grab further opportunities in this segment going forward.
Emerging economies (termed as growth markets by IBM) such as Vietnam form an important pillar of IBM’s long-term growth strategy. In order to further diversify its revenue base, IBM is expanding its operations and opening branch offices, data centers, banking centers and research facilities not only in Vietnam but also in Singapore, Japan, Korea and Hong Kong.
We believe that IBM will continue to pursue strategic partnerships in the Asia-Pacific region, which will boost its growth over the long term. We also believe that IBM’s continued focus on global expansion will provide it a significant competitive edge over the likes of Amazon Inc. (AMZN), Microsoft Corp. (MSFT) and Google Inc. (GOOG), as well as smaller local companies operating in any given region.
However, we believe that most of these emerging countries of the Asia-Pacific suffer from poor infrastructure growth, socio-political instability and bureaucratic red-tapism (since governments are major customers of IT services in these countries), which could lead to aggressive bidding for contracts and delayed decision-making, thus impacting IBM’s growth trajectory.
We have a long-term Neutral recommendation on IBM. Currently, IBM has a Zacks #3 Rank, which translates into a short-term Hold rating.
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