Transformation Is Key to IBM’s Success


Sep. 9 2015, Updated 1:46 p.m. ET

Disruption in the IT space

It’s very obvious that the IT (information technology) segment is extremely different than it was in the last decade. One of the main challenges faced by IT companies such as International Business Machines (IBM), Oracle (ORCL), and Accenture (ACN) is continuous innovation in products and services offered.

The IT segment has seen a massive disruption from the growth in cloud computing, the rise of social media, and the flood of mobile devices. IBM and peer companies Amazon (AMZN) and Google (GOOG) are looking to monetize new trends such as the Internet of Things, cloud computing, and big data.

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Opportunity for IBM in big data

In 2013, IBM bid for a cloud contract with the CIA (Central Intelligence Agency) but lost out to Amazon since it didn’t have a true cloud product. To enter the cloud segment, IBM acquired SoftLayer in 2013. Cloud computing space presents a huge opportunity for companies in terms of long-term growth in revenues.

Although IBM is not a major player in the IaaS (Infrastructure-as-a-Service) segment, it’s focusing on migrating legacy systems to cloud, thereby helping clients build business applications. Cloud computing has generated approximately $8.7 billion in revenues for IBM in the trailing 12-month (or TTM) period.

Big data, however, is quickly emerging as a business segment in which IBM could increase market share and revenues. Since its acquisition of Merge Healthcare (MRGE), IBM is looking to assist doctors efficiently through medical imaging and developing patterns and insights to help achieve medical breakthroughs.

You can consider investing in the iShares US Technology ETF (IYW) and the First Trust ISE Cloud Computing ETF (SKYY) to gain exposure to IBM. IYW invests about 4.2% of its holdings in IBM, while SKYY invests 2.49% of its holdings in the company.


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