IBM (IBM) is a leading provider of enterprise solutions, offering a broad portfolio of IT hardware, business and IT services, and a full suite of software solutions, notes John Buckingham, a leading value-oriented money manager and editor to The Prudent Speculator.
As the Info Tech sector has exploded, IBM has struggled to keep up. Under the leadership of Ginni Rometty, the company created a set of ‘Strategic Imperatives,’ which were to be the guiding light for IBM’s future.
While these have grown from zero to half of the company’s trailing 12-month revenue in a few years, the company’s aversion to big mergers and late arrival to the data center ‘dance’ put it in an unenviable position.
We think that the recently announced $34 billion purchase of Red Hat, a provider of open source software, offers hope that IBM may finally have turned to a new chapter, though a hefty price is being paid.
Red Hat’s OpenShift software runs on private clouds (owned by one company) or public clouds (like AWS or Microsoft Azure), and could finally let Watson, IBM’s learning engine, grow nearer to its potential.
Assuming it can close the acquisition and overcome the integration risks, we believe IBM will be better able to keep up with its cloud computing peers.
IBM estimates that the global cloud is only 20% built out, so there is plenty of growth potential, yet its stock trades for just 8 times earnings, both trailing and forward, and yields 5.5%.
