Cloud Computing IBM's Edge - Analyst Blog

A leading provider of information technology (IT), International Business Machines Corp. (IBM) announced new partnerships with leading companies and institutions for providing cloud computing solutions.

IBM's LotusLive public cloud service is helping clients by providing integrated email, web conferencing, and social networking and collaboration services. This improves the day-to-day business functioning and efficiencies and helps in developing innovative ideas much faster.

According to the research group IDC, worldwide spending on cloud services is expected to grow almost threefold, reaching $44.2 billion by 2013. Enterprise spending remains robust, with manifold growth expected in cloud computing space, within a very short span of time.

Small and medium size businesses (SMB) are also rapidly adopting cloud computing technologies to improve their IT systems management at a lower cost.

IBM and Cloud Computing

IBM has been one of the key companies supporting the concept of cloud computing from the very beginning. In 2010, IBM launched of a formal Cloud Computing division.

Most of the existing clouds are built on IBM-supplied infrastructure—either in the form of hardware components or so-called midware. In 2010, IBM announced the release of systems software for Amazon's Elastic Compute Cloud.

IBM remained focused on developing its cloud offerings through acquisitions. In 2010, IBM acquired Sterling Software, a provider of e-commerce software. IBM also acquired Cast Iron Software to gain access to middleware for integrating cloud computing services. In the recent past, IBM's Cognos, Websphere, DB2 and Rational software offerings have all been made available via the cloud.

New Partnerships

IBM announced partnerships with Ariba and SugarCRM. IBM will be providing social commerce and customer relationship management (CRM) to these companies.

SugarCRM, a leading provider of open source CRM software, is integrating LotusLive into its customer relationship management application. The combined offering is expected to help the company in reaching potential customers in an easier way and within a very short span of time.

Ariba will integrate LotusLive into its Ariba Discovery service. This will improve collaboration between buyers and sellers through web conferences, online chats, and sharing documents, resulting in improved communications and faster decision making. The service is expected to be available from the first half of 2011.

Increasing Global Reach

A number of global organizations have adopted IBM's cloud computing solutions. This includes organizations such as Australian Bureau of Statistics (ABS), C&D Foods, Crawford & Company, the Fashion Institute of Design and Merchandising, General Motors Components Holdings LLC and General Milling Corporation.

General Motors Components Holdings LLC (GMCH), a wholly owned subsidiary of General Motors (GM), is using LotusLive to provide employees with cloud-based email, calendar and contact management services. GMCH has also purchased LotusLive Connections to facilitate social networking and collaboration between employees in the Cloud.

Similarly, Ireland-based C&D Foods adopted LotusLive iNotes, to shift its employees at their canning facility in the Netherlands from Microsoft Exchange, in a quicker and cost-effective way.

Philippines-based General Milling Corporation (GMC), adopted LotusLive's complete collaboration suite to provide its employees with cloud-based email and advanced collaboration tools.

Our Take

IBM remains a heavyweight in the cloud-computing market. The company posted a strong fiscal 2010 results and ended the year with a cash balance of $11.65 billion. We believe this strong cash balance will help IBM acquire companies with high intellectual property (IP), which will drive further growth in the upcoming quarters.

However, IBM faces strong competition from Oracle Corp. (ORCL), Hewlett Packard Co. (HPQ), Microsoft Corp. (MSFT) and EMC Corp. (EMC) in the cloud computing market.

We have a long-term Neutral recommendation on the stock. Currently, IBM retains a Zacks #3 Rank, which implies a short-term Hold rating on the stock.