Why Apple's Deal with IBM is the Biggest Tech News of 2014

Two months ago, we published an article discussing how Apple Inc (NASDAQ: AAPL  ) is becoming more like International Business Machines Corp  (NYSE: IBM  ) but who would have seen this deal coming? It seems even less likely than the 500:1 odds that one Essex man cashed in on from correctly predicting the Germany 7, Brazil 1 upset. Unlike the World Cup game though, investors in Apple will cash in on this surprise, leaving Microsoft Corp (NASDAQ: MSFT  ) and BlackBerry Ltd (NASDAQ: BBRY  ) to be upset. IBM gets unique new products to architect and sell while Apple gets a massive distribution network for mobile computing.

"We found a kindred spirit in IBM" ... really?
As happy as Steve Jobs would have been at Tim Cook's success growing and managing his company, you have to wonder if he would have cringed when Cook called IBM a kindred spirit. Its more likely that Cook found a kindred spirit in IBM's openness to partner up rather than the culture and values of the organization. That said, this is clearly value creating for Apple shareholders.

Expanding within multinationals.
Apple is the king of the consumer and IBM has a trusted footprint in virtually every multinational enterprise in one form or another. Despite their respective huge presences, there is virtually no overlap between them. It's really a natural fit if the two cultures don't create friction and it seems like they will be more independent than codependent. Judging from the content in the press release, the new applications will be jointly developed, but it seems that IBM will be taking the lead. It references IBM's domain experts and developers, but only Apple's infrastructure rather than people.

New class of business apps
The joint venture will develop "industry specific apps built from the ground up" that offer cross selling opportunities for IBM's cloud services and device management along with Apple's extended warranty program: AppleCare.

The biggest advantage for Apple shareholders is the additional distribution
Apple may have a larger market cap than IBM, but Big Blue has more consultants and developers than Apple has employees. The press release quotes IBM's 100,000 consultants and developers which is more than Apple's 80,000 total employees. In total, IBM has 431,000 employees, most of which are focused on enterprise computing and services. With the partnership, Apple is now adding a massive new distribution channel.

Who loses? Blackberry and Microsoft
Blackberry is the first company that comes to mind as a potential loser in this transaction. IBM solutions don't materialize overnight, but a key initiative in Blackberry's turnarounds strategy is to develop industry specific applications. IBM just has dramatically more resources than Blackberry to throw at the problem. The partnership is unlikely to impact near-term results since it would be easy for companies that already have Blackberry devices to expand their presence.

Longer term, this could be a real threat for Microsoft. Apple has had little success penetrating enterprise computing, but mobile can act as a back door. Applications that start out on an iPad could expand to Powerbooks rather than Intel-based machines and start chipping away at the tax that Microsoft ELAs are sometimes considered.

It seemed natural for Microsoft to be able to capitalize on its enterprise relationships and offer Nokia handsets, but IBM has just offered Apple a way to negate this advantage.  This comes at a time that frustration with Microsoft is high, just months after sunsetting Windows XP caused large organizations to absorb huge migration bills.

Biggest tech story of 2014
This announcement could be one of the biggest stories in tech investing this year. As Amazon.com is trying to compete with everyone and Google and Facebook build new functionality that competes against smaller pure play Internet services, we are starting to see a troop of 800 pound gorillas emerge as the industry leaders suck up the bulk of the industry's profits, much like the Robber Barrons of the 19th century. Apple shareholders should celebrate this shift since the partnership is about to increase Apple's distribution dramatically as IBM contributes the part time efforts of its 100,000 consultants and developers.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

 


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  • Report this Comment On July 18, 2014, at 10:54 AM, Justice007 wrote:

    Is this the first time Apple and IBM are teaming up on a project? If not, what were the outcomes of the previous attempts? Are you able to see the future? How do you know this latest partnership will turn out any different than before? Stop presenting guesses are certain outcomes.

    Further, stop acting like an Apple mouth piece. You and I know that if you had the powers to know how this and every other deal on the planet would turn out, you would have been on a beach somewhere retired and having a smooth drink to your heart's content. Some of you guys are worthy of an investigation for deliberate attempts at stock price manipulation. By the way, can you tell me what will be the exact price of an Apple stock at the end of the day now? After all, you know so much.

  • Report this Comment On July 18, 2014, at 12:06 PM, Justice007 wrote:

    I meant stop presenting guesses as certain outcomes.

  • Report this Comment On July 20, 2014, at 1:47 AM, ConstableOdo wrote:

    Get real. Wall Street took one look at that Apple/IBM alliance and said, "Booooring! Next." Announcing that deal did more harm than good for Apple's share price. In fact, I doubt there's anything Apple could announce that would boost its share price. That's just the nature of the game. As far as Wall Street is concerned, there will be no immediate pay-off for Apple and that's all there is to it.

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Leaked: Apple's Next Smart Device
(Warning, it may shock you)
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