Consistent with its expansion policy in Africa, IT major International Business Machines Corp. (IBM) recently opened a new branch office in Port Louis, Mauritius. Although IBM opened its first office on the island of Mauritius more than 10 years back, the new branch office is in accordance with the company’s extensive expansion policy in the region.
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 verticals including textile, banking, tourism and telecommunications in Mauritius. Recently, textile giant Compagnie Mauricienne de Textile Ltee (CMT) chose IBM’s data storage solutions, which improved its operating performance by approximately 20%.
Similarly, Mauritius-based International Card Processing Services (:ICPS) has also selected IBM’s power solutions to modernize and support IT platforms for the country’s banking and financial services sector. Besides ICPS and CMT, IBM also has other big clients in the region, including Air Mauritius, Bramer Bank, Rogers Group and Mauritius Union Assurance.
Over the last couple of years, Africa has emerged as the growth focus for IBM, as the company continues to extend its support toward a number of key sectors (primarily banking and financial services) across the continent. IT spending in the continent is expected to grow at a compound annual growth rate (CAGR) of 11.5% over the next four years. We believe that IBM’s initiatives to grow in Africa positions it well to benefit from the increasing IT spending in the region.
IBM has a number of agreements (approximately 20) with leading banks across Africa, which is expected to drive its expansion policy going forward. Through partnerships with Bharti-Airtel and Vodafone Group Plc (VOD), IBM is providing complete assistance to the banks to launch financial services such as mobile banking and internet banking for their growing customer base.
Apart from banking and financial services, IBM also serves a number of clients across key sectors, such as telecommunications, oil & gas and government verticals. This year, IBM has been chosen by various government agencies across different African countries to support their operations, and thus has ensured steady flow of orders and market share gains across the region.
Moreover, IBM is also developing academic relationships with a number of universities in Africa for imparting information technology training to students, thereby boosting its socio-economic relevance in the continent.
IBM has invested approximately $300 million in Africa since 2006 and plans to increase its spending in the continent by 47.0% to $12.5 billion by 2015. To expand its operations and raise demand for its service and solutions, IBM has also opened more than 20 offices across Africa.
We believe that IBM will continue to open branches in uncharted areas of the African continent, which will enhance its presence in the key growth market and support its global growth strategy over the long term. By 2015, IBM expects to expand its operations to at least 23 countries across the continent.
Despite the socio-political instability and underdeveloped economic conditions in Africa, we believe that IBM is well positioned to benefit from the tremendous growth opportunities in the region over the long term.
Moreover, as growth and investment opportunities in the developed countries slow down in 2012 and beyond (the visibility is particularly murkier), we believe that Africa and the Asia-Pacific are the new cash cows for IBM. IBM expects the growth markets to contribute 30.0% of its total geographic revenue by 2015, up from 21.0% in 2010.
We have a long-term Neutral recommendation on IBM. Currently, IBM has a Zacks #2 Rank, which translates into a short-term Buy rating.
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