IBM's Hardware Cloud Play

IBM (NYSE: IBM  ) has developed an innovative way to prevent an increasing shift toward cloud computing, which it anticipates will eat into a large part of its future profits. The result is a new offering called "PureSystems" that reduces the time and, more importantly, money involved in complex IT-based maintenance processes.

The big question is: How well will this product be accepted in a market where there is a noticeable shift from in-house (and costly) storage options toward remote "cloud-based" data centers? Time to delve a little deeper.

So, what is PureSystems?
PureSystems is the culmination of more than four years of research and development efforts and $2 billion worth of acquisitions by the company. The result is a product whose key benefits include simplicity, time savings, and cost-effectiveness. PureSystems allows for "mass customization" -- lowering the cost of setting up Web applications and maintaining them over time. This is possible because the system offers standard server configurations that individual companies can then customize according to their internal IT requirements, without the need to start from scratch. An added advantage is that the system would also enable the transfer of extra workloads to IBM's SmartCloud services, so that businesses would not have to purchase more hardware, or wait longer for tasks to be completed.

Too late, perhaps?
Even then, the offering comes quite late as rivals such as Cisco Systems (Nasdaq: CSCO  ) already offer a similar product called UCS or Unified Computing System and VCE or Virtual Computing Environment. Other products such as Oracle's Exadata also do pretty much the same thing.

IBM also announced its willingness to buy back its rival's products, so that business customers can use the company's new offering instead. Wow, talk about a desperate rush for clients. But IBM knows very well that providing hardware alone won't do the trick, especially when businesses are increasingly opting for external cloud computing services as they realize that maintaining their own servers can be a rather costly proposition.

The future is in the cloud
According to IBM, companies use upward of 70% of their IT budget on maintenance alone. As a result, they are now increasingly moving toward external cloud service providers such as Amazon.com's (Nasdaq: AMZN  ) Web services. According to research firm Gartner, spending on cloud computing services is expected to reach a phenomenal $72.9 billion by the year 2015.

The Foolish bottom line
IBM is rather late in joining the ranks of Cisco and Oracle. And with rivals such as Amazon already gaining mass acceptance "in the clouds," there is a great deal of uncertainty about how well its product might perform in the market once it is released in June.

At the same time, I feel that there would be some demand for such systems as businesses recognize the need for simplicity and an in-house cloud for security reasons, rather than relying on a third-party server. I'm keeping an eye on IBM, and so can you by adding it to your free Watchlist.

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Fool contributor Keki Fatakia does not hold shares in any of the companies mentioned in this article. The Motley Fool owns shares of IBM, Cisco Systems, Oracle, and Amazon.com. Motley Fool newsletter services have recommended buying shares of Amazon.com. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On April 16, 2012, at 10:19 PM, mdecatur wrote:

    Keki,

    You have to dig further... I don't know where to start but simply to say you have to dig further.

    Peace,

    MhD

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