IBM (IBM) reported first quarter earnings in April 2012, roughly one month before Hewlett-Packard (HPQ), with an earnings report that did not seem to surprise anyone in the investing world. IBM keeps moving forward in its blue collar way to provide investors ample reasons to buy its stock.
Sure, the technology world has slowed down on fears of Europe and China, but IBM has fought back fears from investors. IBM also understands that cloud-based services are a game changer for business innovation around the globe and for all sectors. Cloud-based services are expected to revolutionize licensing revenue, marketing, and overall productivity for technology companies and for the business subscriber. Cloud-based services are that important to technology companies and for businesses going forward that IBM has recently released a report on game changing ideas in the business world because of cloud-based services.
Cloud-Based Services are Key to Future Business Innovation
Irving Wladawsky-Berger recently published an article concerning a recent study that was conducted in part by IBM on the importance of cloud-based services. The study entitled The Power of Cloud: Driving Business Model Innovation outlines six ideas on how cloud-based services can and are a game changer for business innovation. The six ideas are cost flexibility, business scalability, market adaptability, masked complexity, context-driven variability and ecosystem connectivity. The report also focuses on three subsets within business which are optimizers, innovators and disruptors. Wladawsky-Berger writes an article that is very understandable to the average business person and is able to convey IBM's ideas from the report.
According to IBM, optimizers are geared more toward infrastructure problems companies have today because of the overall cost of new or IT infrastructure. Innovators are referred to businesses that can leverage cloud-based services to lower or avoid risks when pursuing new products or services and the related costs business costs of marketing as well as human resources. Lastly, IBM views disruptors as maybe the most important portion of cloud-based services with companies offering maps-as-a-service, navigation-as-a-service, software-as-a-service, books-as-a-service and the list has endless opportunities for companies to increase something-as-a-service via cloud-based services. The report shows the investor that IBM understands the importance of cloud-based services now and in the future.
Personal versus Business Cloud-Based Services
The current state of personal cloud-based usage is dominated by Apple (AAPL) and Google (GOOG), but I believe Apple and Google are truly interested in personal cloud-based services. Google and Apple have typically spent money on research and development for the consumer sector and not necessarily on the business sector. I know it is hard to ignore the dominance that Google and Apple control in cloud-based consumer services but Microsoft (MSFT) has been biting at their heels.
Dell (DELL), on the other hand, is struggling with internal problems developing a competitive tablet before it can move forward with cloud-based services. Lastly, Cisco (CSCO) is in no better position than HP and Dell to compete for cloud-based services without spending a lot of money on new acquisitions. I believe in the future acquisitions for cloud-based technology companies will be hard fought with bidding wars taking place when necessary.
Now the business world for cloud-based services is a different animal all together. IBM and its competitors Hewlett Packard, Oracle (ORCL) and Microsoft to name a few, understand the importance of securing market share of cloud-based services now and in the future. Each of these companies is competing to expand existing cloud-based services. Businesses see cloud-based services as a vital way of doing business in the future. Businesses are struggling with big data issues as well as wanting user friendly services.
Cloud-based services can offer or integrate many software applications and platforms into a single location for all employees to build, edit, and share information in real-time. Businesses view cloud-based services crucial in order to stay competitive in the ever changing business world. Businesses and technology businesses are trying to capitalize on future growth and revenues that can be delivered by having a strong cloud-based services going forward. Cloud-based services are really a win/win for both entities.
I like IBM and think the company is in an excellent position to move forward and at a price around $196, I think a person can achieve a 20% increase by years end. In fact, IBM is something to hold through 2015 and maybe beyond based solely on its dividend and its return on shareholder value. IBM has returned $133 million to investors by way of dividend and stock buy-back plans with quarterly dividends alone are 6% year-over-year since 2000.
Another reason to buy IBM is that it currently has 1 million users and analyzes more than $100 billion in commerce a year within its cloud-based services. According to the latest earnings report in April 2012, IBM's cloud-based services revenues have more than tripled since 2010. It should also be noted that IBM has understood the importance of building strong cloud-based services and IBM knows it can supply the storage necessary but they also want to provide software and applications that generate future licensing revenues too. I like the fact that IBM has spent over $60 billion on research and development since 2000. More interesting for IBM has been its software acquisitions and its profits derived from software-as-a-service in the future. I like that IBM understands that software-as-a-service could increase earnings by $0.75 per share over a relatively short time frame.
I am not the only person that thinks IBM is a winner now and in the future. Other analysts feel comfortable with IBM's estimates at $3.63 per share for the second quarter 2012. I agree with Richard Snow, at Snow Capital Management, on his assessment of IBM being an interesting top-growth stock. Snow outlines a good argument for growth at IBM based on IBM's ability to concentrate on high-growth and high-value segments of the IT industry.
I believe that IBM has the personnel and infrastructure in place to make a run on developing more cloud-based services which, in my view, will drive business innovation and profits for many years to come in the future.