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IBM's Red Hat OpenShift Platform to be Leveraged by Siemens

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Zacks Equity Research
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International Business Machines IBM recently announced that Siemens will leverage its Red Hat OpenShift platform to boost flexibility and deployment of MindSphere.

IBM’s Red Hat OpenShift is one of the most comprehensive and widely used Kubernetes platform. By leveraging Open Shift, Siemens can enable customers to run MindSphere on either cloud or on-premises, per their operational requirements.

The deployment of MindSphere on OpenShift will provide clients complete “physical control” of their data. This is also expected to help them adhere to data privacy needs, noted the companies.

International Business Machines Corporation Price and Consensus

International Business Machines Corporation Price and Consensus
International Business Machines Corporation Price and Consensus

International Business Machines Corporation price-consensus-chart | International Business Machines Corporation Quote

MindSphere is Siemens’ industrial internet of things (IoT) as a service solution, which is utilized by worldwide manufacturers to gather and analyze data in real time from plants, systems as well as machines. This facilitates manufacturers/users to create digital twins by streamlining production assets and manufacturing processes throughout the value chain.

Further, IBM added that the company’s Global Business Services and Global Technology Services consultants will be offering managed services and IoT solutions for Siemens' MindSphere clients to minimize IT risks.

In June 2020, IBM and Siemens had jointly rolled out a Service Lifecycle Management (SLM) solution designed to aid customers improve the performance and reliability of their assets.

The SLM offering combines elements from IBM’s enterprise asset management solution –– Maximo –– with Siemens’ Xcelerator product life cycle management solution.

IBM’s Ambitious Hybrid Cloud Bet

IBM has been betting big on hybrid cloud opportunity. According to a report from Mordor Intelligence, hybrid cloud market is forecast to witness a CAGR of 18.73% between 2021 and 2026 and hit $145 billion.

Globally, business enterprises were promptly shifting their workloads to cloud, even before the COVID-19 crisis. Migration to cloud offers enterprises increased scalability, faster deployment as well as cost efficiency and higher security. The pandemic has only accelerated this shift.

Increasing migration of workloads to cloud will drive demand for solutions ranging from human capital management, to cloud infrastructure monitoring as well as web-based application performance management. This underscores massive growth opportunity for cloud service providers like IBM.

IBM also announced the split of its business in two separate units, in October 2020, to capitalize on the hybrid cloud opportunity. The tech giant will spin off (tax free) Managed Infrastructure Services, a unit of its Global Technology Services segment, into a new company by the end of 2021. IBM recently announced that the new company will be helmed by Martin Schroeter as a CEO.

IBM is on an acquisition spree to gain further ground in the cloud market. The tech giant acquired many start-ups (including NordCloud, TruQua and Instana) in the 2020 to bolster its cloud initiative.

Notably, Red Hat acquisition, IBM’s largest cloud-based acquisition, helped the company to strengthen competitive position in the hybrid cloud market and boost its boost containerized software capabilities. The company was purchased by IBM for $34 billion in 2019.

For 2020, revenues from Red Hat increased 18% on a normalized basis. Currently, more than 2,800 clients are utilizing Red Hat and IBM’s hybrid cloud platform.

These endeavours seem to be headed in the right direction as IBM’s cloud revenues, as a percentage of total revenues, stood at 34% in 2020.

Persistent Headwinds

Nonetheless, escalating costs on hybrid cloud platform amid intense competition in the cloud vertical from dominant players like Amazon’s AMZN Amazon Web Services, Microsoft’s MSFT Azure and Alphabet’s GOOGL Google Cloud are a major headwind for this Zacks Rank #3 (Hold) stock.

Also, increasing debt levels in the middle of extensive restructuring efforts put pressure on the stock. The stock has lost 11.5% against the industry’s decline of 5.9%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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