IBM is banking more heavily than ever on software and services rather than hardware, its announced $1 billion in Flash upgrades for 10 global data centers further proof of Big Blue’s evolving strategy under Chairman and CEO Ginny Rometty.
Big Blue sees lots of blue sky in “cloud computing,” with analysts firms such as IDC forecasting huge growth in cloud, virtualization and related data services.
Analysts at UBS like what they are seeing at IBM (NYSE: IBM), having raised IBM to a “buy” from neutral. They also upped the share target price by $20 to $235. IBM closed at $209.67 Wednesday. Its 52-week high is $215.90.
Today is earning’s day for Big Blue (NYSE: IBM), and it is expected to report another strong quarter. UBS sees more good news ahead, primarily because of IBM’s information technology-as-a-service, or ITaaS, play.
“IBM is a beneficiary of the next computing wave,” wrote Steven Milunovich in the UBS research note.
“In conjunction with our report ‘The Clouds Part: Implications of IT-as-a-Service,’ we are upgrading IBM from Neutral to Buy. We think IBM has the best strategy and execution in our group with its innovate and integrate approach.”
Milunovich predicts IBM “should be a winner” in ITaas for several reasons.
“We think IBM is well positioned for the coming computing era because (1) integrated vendors do well early in a tech transition; (2) most of the near-term action will be in private cloud, IBM’s strength; and (3) IBM’s hosting capability and support of OpenStack will be helpful later in the wave.”
There are Triangle connections here. IBM picked RTP for one of its new data centers – but not for the Flash upgrades. And Raleigh-based Red Hat is a big player in OpenStack – a drive to build clouds based on open source. Meanwhile, IBM is part of a new consortium targeting software-defined networking, or SDN, along with Red Hat. SDN has the potential to shake up the network industry just as cloud is transforming data centers.
Lessons Learned the Hard Way
In the report, Milunovich noted that IBM has learned some tough lessons.
“Perhaps because IBM faced the grim reaper in the early 1990s, it has had the best strategy among the large computer vendors in the last decade. IBM was disrupted, lived to tell the tale, and got religion,” he wrote.
“It recognized that its differentiation is in providing solutions. It divested PCs and disk drives and acquired software vendors. It jumped on open systems, including Linux and now OpenStack. It became a truly global company.
“CEO Ginni Rometty embraces transformational change in a way rare for a 100-year old company.
“Previous CEO Sam Palmisano described IBM’s strategy as innovate and integrate. IBM’s R&D capabilities are unparalleled as highlighted at the last two analyst meetings. Watson is a breakthrough that ushers in the cognitive era of computing. IBM is all-in on big data while working on futuristic breakthroughs in processor and memory technology. At the other end, IBM can provide solutions on an unmatched scale as reflected in its Smarter Planet wins, especially in emerging markets. Although IBM rarely is the best-of-breed
vendor by product, it more than compensates with its ability to create solutions and execute on complex problems for customers.”
Referring to a separate cloud report, the UBS analyst said IBM is prepared for a transition to ITaaS while hardware companies aren’t.
“In our industry report, we argue that ITaaS might require computer vendors to become service providers. Given its outsourcing history and data center infrastructure, IBM is prepared to go this direction as needed and will be trusted by customers. IBM isn’t the first to market in cloud or converged infrastructure, but we are confident it will be a force. Our belief that private cloud will dominate ITaaS in the next few years plays to IBM’s strength.”
Then there is open source, which IBM has supported for years and has worked closely with Red Hat in Linux especially.
“Open systems support is important. We also suggest that integrated vendors do well early in a new era but that horizontal vendors may win later. IBM is more integrated, which is a near-term advantage and potential long-term risk,” Milunovich said. “However, IBM has done a turnaround in the last decade in its willingness to endorse standards. It ran with the Linux ball and ironically made more money around Java than Sun did. Now IBM is throwing its weight behind OpenStack. OpenStack is immature and not a standard yet, but we think it will become important. IBM has shown it can add value on top of standards.”
[IBM ARCHIVE: Check out more than a decade of IBM stories as reported in WRAL Tech Wire.]