Information Technology (IT) giant IBM Corp. (IBM) recently opened a new branch office at Luanda, Angola. This follows the branch openings at Dar es Salaam, Tanzania and Dakar, Senegal, in the first half of 2011.
The Luanda office is a part of IBM's central Africa operations and will complement IBM's other branch offices in the region. The branch office will enable IBM to deliver solutions and services to its growing clientele in the region.
IBM already serves a number of clients in key sectors spanning the telecommunications, oil & gas, finance and government verticals in the region. IBM has been selected by one of the major banks of Angola to help transform the institution's banking technology infrastructure and support business growth.
The new branch office in Angola is a part of IBM’s strategy of expanding its footprint in the emerging markets of Africa. IBM has offices in more than 20 countries in Africa, including South Africa, Morocco, Egypt, Tunisia, Algeria, Ghana, Nigeria, Kenya, Tanzania, Senegal and Mauritius.
Moreover, many government agencies from different countries in Africa have chosen IBM’s services and technical support for their operations. Since July 2008, the company has deployed 363 IBM employees in 32 teams to South Africa, Tanzania, Nigeria, Ghana, Kenya, Morocco and Egypt. Through these projects, IBM has worked with local organizations and businesses across Africa to support community driven economic development.
Recently, IBM helped the Kenyan government to build an electronic master plan for the country. The team focused on the challenges and requirements to help Kenya realize its vision of transforming into a middle income nation by 2030. IBM has also won significant government contracts in Cameroon, Senegal and Tanzania.
In July 2011, Bharti Airtel and IBM signed a 10-year agreement to provide comprehensive end user services to Airtel employees across Africa, in French and English. In Tanzania, IBM is collaborating with the National Microfinance Bank (NMB) to help transform the latter’s core banking technology infrastructure and support business growth. NMB is using IBM’s Power servers and storage technologies to serve a customer base of more than 1.4 million.
We believe that the winning of new contracts both in the government and private sector across Africa will ensure a steady flow of orders and market share gains across the region. IBM plans to open 10 new offices in Africa, bringing its total number of offices in the continent to 35 by 2015. By 2015, IBM expects to expand its operations to at least 23 countries across the continent.
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. This will help IBM tap the growing mobile-banking market in Africa over the long term. In April 2011, IBM and SAP announced a server appliance designed specifically for mobile carriers, which will make it easy for them to launch new mobile commerce services Africa.
Recommendation
IBM expects growth markets of Africa and Asia-Pacific to drive revenue and increase growth in 2011 and beyond. In 2010, IBM generated 29.0% of its total systems revenues from these markets. The company expects revenue from these markets to grow at least 40% by 2015. IBM expects growth markets to contribute 30.0% of its total geographic revenue by 2015, up from 21.0% in 2010.
We believe that IBM is aggressively expanding its operations in the growing markets of Africa and the Asia-Pacific. We believe IBM will continue to invest in these regions over the long term primarily due to the sluggish macro environment in both the U.S. and Europe, its two largest markets in terms of revenue.
However, increasing investment may also hurt its profitability in the near term. We also note that these countries lack basic infrastructure and these investments will take considerable time to provide incremental benefit going forward.
Further, 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). Currently, IBM has a Zacks #4 Rank, which implies a short-term Sell rating.
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