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International Business Machines Corp's Best Moves in 2016 So Far

By Leo Sun - Aug 31, 2016 at 3:37PM

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Partnering with Nvidia in GPUs, working with Cisco on analytics, and giving Workday cloud support were all smart moves from Big Blue.

IBM (IBM 2.47%) bears often highlight Big Blue's lack of revenue growth for 17 straight quarters, the slow growth of its cloud business, and the currency headwinds which incessantly gobble up its overseas profits. But despite those challenges, IBM has made some promising moves this year. Let's look back at three of its best.

IBM's Watson Center at Marina Bay, Singapore. Image source: IBM.

Extending its partnership with Nvidia

Intel (INTC 3.06%) currently controls about 99% of the data center chip market, making it tough for IBM's Power CPUs to gain much ground. That's why IBM teamed up with Nvidia (NVDA 5.29%) and paired its Power CPUs with Nvidia's high-end Tesla GPUs for machine learning and AI purposes. Nvidia claims that its Tesla K80 GPU can run certain science applications "significantly faster" than Intel's Xeon 7120 CPU.

Last year, IBM claimed that pairing the Tesla K80 with its Power CPUs enabled its Watson AI platform to answer questions 1.7 times faster. It also partnered with Nvidia and the U.S. Department of Energy to install its Power8 CPUs with Tesla P100 GPUs into two new supercomputers by 2018. This May, IBM announced that it would start offering Tesla M60 GPUs to its cloud-based enterprise clients to help them "deploy fewer, more powerful cloud servers while churning through complex jobs faster."

This partnership strengthens IBM's Open Power initiative, which "open sources" Power-based server designs with third-party vendors to boost sales of Power CPUs. Customers who use Power-based servers could also be more likely to buy additional services from IBM's higher-growth "strategic imperatives" of cloud, mobile, social, analytics, and security.

Teaming up with Cisco for the IoT and AI

In June, IBM announced that it was partnering with networking giant Cisco (CSCO 3.26%) to provide analytics capabilities at the "edge" of networks. The partnership combines IBM's Watson IoT (Internet of Things) and business analytics platforms with Cisco's edge analytics to analyze data from a wide variety of devices in remote locations with limited bandwidth.

IBM states that the service's target companies include oil rigs, factories, shipping companies, and mines. By monitoring equipment in real-time with wireless connections, IBM claims that maintenance costs could be reduced "by up to 50 percent" as productivity is boosted "by 25 percent." The data gathered from those devices should make Watson, a core component of the company's Cognitive Solutions business, more effective at predictive analytics.

IBM CEO Ginni Rometty. Image source: IBM.

IBM and Cisco extended that partnership later that month with the creation of cloud-based workplace tools and apps integrated with Watson. That partnership combines IBM's Watson, analytics, email, and social platforms with Cisco's collaboration (business messaging, meeting, and calling) solutions. IBM believes that as Watson gathers data from that platform, it can offer workers "real-time advice" for handling tasks and boosting workplace efficiency.

Expanding its enterprise reach with Workday

In mid-August, IBM announced that Workday (WDAY -1.54%), a provider of enterprise cloud apps for managing finances and human resources, had adopted IBM Cloud as its primary platform for development and testing. Workday will also eventually use the IBM cloud for other purposes as part of a multi-year agreement.

Workday's platform helps companies staff, pay, and organize their workforces. It employs analytics and machine learning to help companies make financial and workforce-related decisions. Therefore, the partnership complements IBM's recent enterprise deals with Cisco.

IBM and Workday already worked together prior to the deal. IBM acquired Meteorix, one of Workday's top service partners, last year. It also uses Workday's Human Capital Management platform to manage its own workforce. Demand for Workday's services is strong -- analysts expect its revenue to rise 34% this year and 31% next year.

The key takeaway

IBM's partnerships with Nvidia, Cisco, and Workday all bolster its higher-growth strategic imperatives, which accounted for 38% of its revenues over the past 12 months. IBM has already announced or closed ten acquisitions this year to strengthen those businesses with new technologies and inorganic sales growth.

IBM still faces plenty of near-term headwinds, but investors should also take note of Big Blue's accomplishments over the past year. These individual partnerships might not boost IBM's sales growth back into positive territory on their own, but they represent key building blocks for the company's higher-growth businesses.

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Stocks Mentioned

International Business Machines Corporation Stock Quote
International Business Machines Corporation
$138.37 (2.47%) $3.34
Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
$50.60 (3.26%) $1.60
NVIDIA Corporation Stock Quote
NVIDIA Corporation
$181.77 (5.29%) $9.13
Workday, Inc. Stock Quote
Workday, Inc.
$173.34 (-1.54%) $-2.72
Intel Corporation Stock Quote
Intel Corporation
$44.40 (3.06%) $1.32

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