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The Zacks Analyst Blog Highlights: IBM, Intel, Taiwan Semiconductor Manufacturing, Oracle and SAP

Zacks Equity Research

For Immediate Release
Chicago, IL – June 12, 2014 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the IBM Corp. (IBM-Free Report), Intel (INTC-Free Report), Taiwan Semiconductor Manufacturing (TSM-Free Report), Oracle (ORCL-Free Report) and SAP AG (SAP-Free Report).
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Wednesday’s Analyst Blog:

IBM Selling Chip Manufacturing Biz

Reportedly, IBM Corp. (IBM-Free Report) has agreed to sell its loss-making chip manufacturing unit to Globalfoundries. Although the financial details of the deal are not available, it is rumored that the sale-price is approximately $1.0 billion -- much lower than IBM’s initial expectation of $2.0 billion.

Although the server unit attracted a number of other suitors such as Intel (INTC-Free Report) and Taiwan Semiconductor Manufacturing (TSM-Free Report), we believe that IBM’s unimpressive results compelled it to divest the unit in a hurry to avoid further decline in valuation.

IBM had been looking for ways to divest the business for quite some time. It had hired Goldman Sachs for this purpose. However, the company eventually backed away from the idea of divestiture and instead sought for a joint venture.

IBM believed that a joint venture will enable the company to have control over the design and intellectual property of the chips. Eventually, IBM entered into a joint venture with Globalfoundries in 2012.

Currently, Globalfoundries seems more interested in acquiring IBM’s intellectual property (IP) and technological knowhow rather than its manufacturing capability since the latter is more than 10 years old and hence, has undergone considerable depreciation. Globalfoundries, which already has a technology joint development project with IBM, will continue to act as the supplier for IBM’s microprocessors.

IBM’s growing challenges in the hardware segment improved Globalfoundries’ bargaining power. In the first quarter, IBM’s hardware revenues declined 23.0% from the year-ago quarter. Management noted that the company faced headwinds related to power, storage and System X in the hardware segment, which negatively impacted results.

Nevertheless, we believe that the sale of the loss-making business will boost IBM’s profitability, going forward. Moreover, it will help the company to focus more on its fast growing software and services business. We also believe that the divestiture would reduce significant competition for IBM.

We believe that strategic acquisitions, divestiture of non-core businesses, investments in fast growing markets such as cloud computing and analytics business will boost the top line in 2014.

Moreover, aggressive share buyback will boost profitability. However, sluggish enterprise IT spending and intensifying competition from the likes of Oracle (ORCL-Free Report) and SAP AG (SAP-Free Report) in the software business are headwinds in the near term.

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

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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