International Business Machines Corp. (IBM) announced the signing of a definitive agreement to acquire Curam Software Ltd., a provider of social program software solutions. This marks IBM’s third acquisition in a span of three months.
The acquisition is of strategic importance for IBM’s Smarter City initiative, where IBM provides tools to efficiently analyze data, organize resources and comprehend and act in problematic situations. It thereby helps cities and governments to serve the citizens in a more modern and efficient manner.
Solutions from Curam Software are being used in more than 80 government projects across the globe. The solutions are used in the field of HR, health and human services, and social security under its ‘Social Service Program Delivery’. The Ireland-based company has used IBM’s WebSphere software to develop most of its software. Curam Software will be incorporated into IBM's Software Group, a key driver of growth and profitability for the company.
Curam Software is the second company to be integrated in the Software Group after the recent acquisition of i2, a developer of analytical software that prevents crime and fraud in sectors such as banking, defense, health-care and insurance.
IBM expects the acquisitions to be incrementally beneficial for the company in reaching its 2015 goals. IBM's growth initiatives, such as smarter planet and industry frameworks, growth markets, business analytics, and optimization and cloud computing have driven significant growth and generated high profit margins for the company. These initiatives are expected to deliver at least $50 billion in revenues by fiscal 2015.
Moreover, the company expects to generate smarter planet and smarter commerce revenues of $10.0 billion and $20.0 billion, respectively, by 2015. Additionally, business analytics is expected to deliver $16.0 billion, while cloud computing is estimated to deliver $7.0 billion in revenues by 2015.
With $20 billion to spend till 2015 on acquisitions, we expect IBM to continue with its strategy. In the process, IBM would expand its product portfolio and increase its global scale.
Recommendation
IBM remains a heavyweight in the cloud computing market and its strong cash balance enables IBM to acquire companies with high intellectual property, which will drive further growth in the upcoming quarters.
IBM is experiencing strong revenue growth across all geographical regions, coupled with robust growth in emerging markets worldwide. IBM expects these growing markets to drive revenues and increase growth in 2011 and beyond.
However, the competitive landscape includes technology giants such as Oracle Corp. (ORCL), Hewlett-Packard Co. (HPQ), Microsoft Corp. (MSFT) and EMC Corp. (EMC). Therefore, the competitive market obviously challenges the company’s growth.
We have a long-term Neutral recommendation on IBM. Nonetheless, we are optimistic about its strong fundamentals and robust growth prospects going forward. We therefore have a Zacks #2 Rank for IBM, which translates into a short-term ‘Buy’ rating.
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