Can This Tech Company Expand Further Into the Cloud?

IBM made tons of cloud computing progress last year, but its 2014 plans are even more ambitious.

Mar 10, 2014 at 12:00PM

IBM (NYSE:IBM) is in the middle of transitioning from a traditional hardware business to a multifaceted cloud computing company. The cloud computing market is experiencing tremendous growth, but IBM still has lots of work ahead. 

Same IBM, new focus
Cloud computing isn't new for IBM. The company has made about 15 acquisitions equaling nearly $7 billion in order to shore up its opportunities in the space. But in its most recent annual report, IBM said that in order to address new growth opportunities it will focus less on hardware and even more on cloud computing.

IBM CEO Virginia Rometty said in the report, "The modern demands of Big Data, cloud and mobile require enterprise-strength computing, and no other company can match IBM's ongoing capabilities and commitment to developing those essential technologies."

The partial transition away from hardware is evident from IBM's announcement in January that it would sell its x86 server business to Lenovo. Though the company is adamant that it is not exiting the hardware business altogether, Rometty went on to say that the sale is "consistent with our continuing strategy of exiting lower-margin businesses, such as PCs, hard-disk drives and retail store solutions."

IBM believes there's more money to be made from the cloud, which is probably true. The worldwide cloud computing industry is expected to be worth $250 billion by 2015, and over the next two years more than one-fourth of the world's applications will be available in the cloud.

To tap into this, IBM offers everything from its BlueMix platform as a service, to its Watson cognitive computing service, to an Amazon.com Web services competitor. BlueMix, an enterprise software portfolio, will be a big part of the company's plans this year. IBM said the platform will allow corporate and Web developers to build enterprise-class cloud applications for consumers.

IBM isn't simply talking about the cloud, though; it's already proved it can make good money from it. IBM's cloud revenue increased by 69% year over year in 2013, totaling $4.4 billion. Aside from its previous acquisitions, the company is investing $1.2 billion into is cloud infrastructure this year to expand into 15 new markets. The hope is that the new expansion will bring more than $7 billion in annual cloud computing revenue by 2015. But additional growth won't come easy.

A few things to consider
Though IBM's new cloud initiatives are a move in the right direction, the company faces some hurdles. The cloud computing market is quickly growing, but there are already strong competitors in the space. The company will have to overcome Oracle, salesforce.com, Hewlett-Packard, Intel, and Amazon in various cloud computing segments. And some of those areas, such as infrastructure as a service, deliver very low margins.

IBM isn't new to cloud computing, but focusing so much of its business on the tech definitely is a new endeavor. I think it's going to be nearly impossible to beat Amazon in the infrastructure space, and very difficult to outpace Salesforce in the platform segment. While IBM has some lofty goals for cloud computing expansion this year, whether that turns into a competitive advantage is yet to be seen.

Investing in the cloud
Cloud computing is a radical shift in technology and The Motley Fool has selected three companies for investing in this new market. You've likely only heard of one of them, so be sure to click here to watch this video presentation to find out which stocks could benefit the most.

 

 
 

Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Intel, and Salesforce.com. The Motley Fool owns shares of Amazon.com, Intel, International Business Machines, and Oracle.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers