Please ensure Javascript is enabled for purposes of website accessibility

Why IBM Stock Is More Attractive Without Cheap Servers

By Tim Beyers – Feb 10, 2014 at 9:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A $2.3 billion deal brings cash and lowers costs, which is good for IBM stock.

Last month's $2.3 billion deal to sell its x86 server business to Lenovo is bound to be good for IBM (IBM -0.33%) stock, Fool contributor Tim Beyers says in the following video.

Why? Low-end servers are a tough business, and x86 servers -- based on the famed Intel design but also made by Advanced Micro Devices -- had been the low-end of IBM's business where many customers buy on price.

More broadly, it's arguable whether there's much of a market for entry-level servers when so many of the largest users of x86 or similar servers build their own. Think of Google, which not only has its own designs but takes pride in making them as cheaply as possible. IBM was never going to have much success selling into those sorts of accounts.

Bigger deals may also be harder to come by. IBM's hardware sales plummeted 26% in the fourth quarter, perhaps because customers have taken to purchasing computing as a service via cloud operators such as Amazon.com's Web Services group and Rackspace Hosting.

Do you agree? Please watch the video to get Tim's full take and then leave a comment to let us know whether you would buy, sell, or short IBM stock at current prices

Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Google, International Business Machines, Netflix, and Rackspace Hosting at the time of publication. Check out Tim's web home and portfolio holdings or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool recommends Amazon.com, Facebook, Google, Intel, Netflix, and Rackspace Hosting. The Motley Fool owns shares of Amazon.com, Facebook, Google, Intel, International Business Machines, and Netflix. 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.

Stocks Mentioned

International Business Machines Stock Quote
International Business Machines
IBM
$148.67 (-0.33%) $0.49

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.