Information Technology (IT) major, International Business Machines Corp. (IBM) recently signed a deal with the Commercial Bank of Ethiopia (CBE).
Under the terms of the agreement, IBM will help CBE to employ new mobile and Internet banking programs by developing a platform to deliver electronic banking services, as CBE aims to expand its business. The deal is worth approximately $3.0 million and the platform is expected to be operational by August this year.
CBE, which is the largest lender of the country in terms of revenue, plans to expand its network of branches to 500 from the existing 372 by the next five years. This will help CBE to increase the number of account holders by 25% annually, from the current base of 2 million.
Banking services are of high demand in the sub-Saharan regions of Africa, where Ethiopia is the fifth fastest-growing economy (8.0% in 2010), after the Democratic Republic of Congo, Zimbabwe, Botswana and Nigeria, according to an International Monetary Fund (IMF) report published in April, 2011.
IBM remains focused on developing its footprint in the growing economies of Africa. IBM has invested approximately $300 million in Africa since 2006 and plans to increase its spending by 47.0% to $12.5 billion by 2015. During the first half of 2011, IBM expanded its footprint in Eastern and Western Africa by opening new branches in Dar es Salaam, Tanzania and Dakar, Senegal.
The branch offices will enable IBM to deliver solutions and services to its growing clientele in East and West Africa. IBM already serves a number of clients in key sectors spanning the telecommunications, oil & gas, finance and government verticals. The new partnership with CBE will help IBM penetrate further in the growing mobile-banking market in Africa over the long term.
Currently, IBM has offices in more than 20 countries in Africa, including Senegal, South Africa, Morocco, Egypt, Tunisia, Algeria, Ghana, Nigeria, Kenya and Mauritius. IBM plans to open 10 new offices in Africa, bringing its total number of offices in the continent to 35 by 2015 as it starts operations in Tanzania and Angola, besides Senegal. By 2015, IBM expects to expand its operations to at least 23 countries across the continent.
Recommendation
IBM generates more than 50.0% of its revenue outside the U.S. especially from emerging economies such as South Africa, Malaysia, Poland, Ecuador, Singapore, Peru, Romania, the Czech Republic, the Middle East, Vietnam and Australia, thereby enabling the company to maintain stability in its business despite fluctuating economic conditions in the U.S.
Moreover, the company has been selected by many government agencies from different countries in the Asia-Pacific and African regions to provide services and technical support for their operations, thus ensuring a steady flow of orders and market share gains across regions.
IBM expects these growth markets to drive revenues in 2011 and beyond. In 2010, IBM generated 29.0% of its total systems revenues from these markets. The company expects revenues from these markets to grow at least 40% to 30% of its total revenue by 2015, significantly higher than their 21% revenue share in 2010.
We believe that IBM will continue to benefit from its spate of new initiatives like smarter planet, business analytics and optimization, and cloud computing over the long term. However, IBM continues to face stiff competition from a number of companies, including Hewlett Packard Co. (HPQ), Microsoft Corp. (MSFT), Oracle Corp. (ORCL) and EMC Corp. (EMC).
We remain Neutral over the long term (6-12 months) based on the belief that the company’s shares are fairly valued at current levels. Currently, IBM has a Zacks #2 Rank, which implies a short-term Buy rating.
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