Global CIO: If IBM Needs Big Growth, Who's On Acquisition List? - InformationWeek

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4/11/2010
04:50 PM
Bob Evans
Bob Evans
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Global CIO: If IBM Needs Big Growth, Who's On Acquisition List?

Both of those questions carry significant repercussions for CIOs about IBM's focus, ability to execute, and possibly shorter list of competitors.

**"It's time for a bold stroke, or a series of bold strokes," said Peter Sorrentino, senior portfolio manager at Huntington Asset Advisors in Cincinnati, who helps handle $12.8 billion, including 390,000 IBM shares as of Dec. 31. "It really takes a major acquisition or a series of midsize acquisitions."

**"They've maximized the model to the full extent they can," said Ben Rogoff, a manager at Polar Capital Partners in London who helps oversee $2.5 billion, including more than 127,000 IBM shares, as of Dec. 31. "It takes a fair amount of M&A to move the needle on a $100 billion revenue company."

**And this from a financial analyst who covers IBM closely: "Revenues are the elephant in the room," said Brian Marshall, an analyst at Broadpoint AmTech Inc. in San Francisco. "They [IBM] have to boost revenues materially."

On the flip side, investment site Zacks.com sees strong growth ahead for IBM, as laid out in a report under the headline, IBM Wins On New Initiative: We're Expecting Long-Term Growth:

"We believe IBM will benefit from new initiatives such as Smarter Planet, Business Analytics and Optimization and Cloud Computing, giving it a push into the next cycle of growth and productivity for its clients. These initiatives will help the company increase its customer base and deliver an improved top line in 2010.

"We do believe that IBM is fundamentally a sound company and has a strong market position but our caution is related to our expectations of near-term bumps due to increasing competition in cloud computing, virtualization and enterprise analytics from EMC Corp., VMware Inc., Hewlett-Packard Company and Teradata Corp.

"However, we remain optimistic on the company's long-term growth and expect it to post stronger results in 2010."

And the investment site AlphaEarnings.com has also expressed bullishness over IBM's growth prospects:

"Disappointing software growth and conservative guidance raise have jeopardized chances of a better Q1 2010, but several upcoming catalysts including a new server launch this quarter and improved software close rates are expected to improve both earnings and fundamentals further in 1H10. . . .

"IBM finished the year with a strong performance and managed to deliver growth in margins, profits and earnings. It also continued to benefit from their strategic transformation and their commitment to developing countries around the world. 2009 saw IBM investing in Smarter Planet Solutions, cloud computing and advanced analytics, which has put the company in a position to grow as the economy revives.

". . . . several large software deals which were pushed into Q1 2010 combined with an easy compare should be able to drive software revenue growth this quarter. Also, high-end server sales should improve with the launch of new Power-based server products in Q1. . . . Going forward IBM is well positioned to capitalize on several growth areas and opportunities improve operating margins."

And if Palmisano & Co. decide to go the acquisition route, the Businessweek article says that some investment bankers suggested the following companies as possible takeover targets: EMC, NetApp, Juniper Networks, RIM, BMC, and Brocade.

Interesting guesses, to be sure, but I wonder if they're looking in the wrong directions: toward more products, particularly pushing into the networking space or more deeply into storage. Is that really an indicator of where IBM seems to be headed, particularly since the investors' gripe was about growth and not a dearth of technology?

Instead, perhaps IBM would look to fortify its presence in software—if that's the case, then the possibilities could include big and well-run companies ranging from CA to Informatica to SAP, each of which could significantly enhance IBM's current positions while also giving it a nice revenue bump as well. Each of those companies, and particularly SAP, has significant numbers of world-class customers whose collective experiences could blend right into IBM's Smarter Solutions strategy.

IBM is scheduled to announce first-quarter earnings a week from today on April 19, and it'll be interesting to see if the company's been able to return to broad-based growth and what it's future outlook looks like as well.

RECOMMENDED READING:

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GlobalCIO Bob Evans is senior VP and director of InformationWeek's Global CIO unit.

To find out more about Bob Evans, please visit his page.

For more Global CIO perspectives, check out Global CIO,
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