IBM takes controlling stake in Dexia IT unit, shrugs off downgrade

|By:, SA News Editor

IBM (IBM +0.7%) has inked $1.3B worth of outsourcing deals (spread out over 7 years) with Dexia and several other European financial institutions to manage their IT infrastructures. (PR)

As a result, IBM will take a controlling stake in the Dexia IT services unit that had been managing said infrastructures, and will "implement a cloud infrastructure" to expand the Dexia unit's services offerings into new markets.

The tie-up is the kind of higher-margin/value-added services deal IBM has been focusing on, as it looks for way to maintain EPS growth in the face of top-line weakness. IBM's services revenue fell 4% Y/Y in Q3, but its backlog ($141B) was flat Q/Q and up 2% Y/Y.

Separately, Cowen has downgraded IBM to Market Perform. The firm cites negative survey data regarding Big Blue's services workload and execution/delivery, and (with $100B worth of contracts set to be renegotiated in 2014, and Indian competition an issue) thinks the company's U.S. revenue growth outlook and IT outsourcing base are at risk.