IBM's (NYSE:IBM) recent struggles have been no secret. Last quarter's subpar earnings sent shares sliding, and recent fixes, like the planned layoffs in Europe and worldwide, won't address all the problems, like meager top-line growth.
The problem, of course, is how to get the growth back on track. It won't be simple. IBM is getting away from the lower-end hardware biz, which it somehow not only lost to upstarts like Dell (NASDAQ:DELL), but also actually managed to make unprofitable. The idea is to concentrate on the gravy from global services, which is the largest chunk of revenue, as well as the one growing most quickly these days.
Today's answer? More acquisitions. The firm recently agreed to buy a data-integration partner, Ascential Software (NASDAQ:ASCL), for $1 billion, and today, IBM announced that it would purchase Gluecode Technology, a small private firm that sells enterprise software solutions built on open-source software, including Apache Geronimo and Java. The press release says that the Gluecode systems will give IBM a foothold in the market for smaller businesses.
Unlike the Miss Haversham of software, Microsoft (NASDAQ:MSFT), IBM saw the writing on the wall long ago regarding the advantages of open-source software: Don't be too proud. Let the geeks out there work on the underlying IT infrastructures, and just sell software packages and specific know-how to businesses. This is why IBM has strengthened its partnerships with Red Hat (NASDAQ:RHAT), for instance.
Will this help IBM get more traction with smaller businesses? How much could it contribute to the top line? No idea. The bragging-rights section of Gluecode's website isn't exactly bristling with heavy-hitting clients, but if the $100 million price tag being reported today is true, it won't be much of a hardship for IBM if things fall through -- it probably spends that much on lunchroom Jell-O in a given year.
Investors should take this away: IBM continues to make strategic moves toward future growth, and it has good balance sheets and more than enough free cash flow ($11 billion last year) to do what it takes. I may not have liked it near $100 a share, but at $73 and change, trading at multi-year lows in terms of price-to-earnings, enterprise value-to-sales, and enterprise value-to-EBITDA and free cash flow, value investors should be giving Big Blue a good, hard look.
For related Foolishness:
- Is IBM a nano-player?
- Why is IBM so blue?
- In December, I urged Fools to forget IBM. What about now?
- Stop listening to the simpletons who write headlines. IBM's no bellwether.
Seth Jayson is not afraid to flip-flop when the price is right. At the time of publication, he had positions in no firm mentioned. View his stock holdings and Fool profile here. Fool rules are here.
