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Will the “Third Platform” Provide International Business Machines Corp. (IBM) Much Needed Growth?

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During the Partner World Leadership Conference 2013, International Business Machines Corp. (NYSE:IBM) announced a new initiative to plug itself the “third platform.” The third platform comprises of big data analytics, cloud services, and mobile computing. The cloud computing and analytics segment of International Business Machines Corp. (NYSE:IBM) performed exceptionally in the last few years, as the revenue growth reported was fairly consistent. Going forward, these divisions in combination with the third platform are expected to drive IBM’s growth. The IT spending on the global scale witnessed an exponential growth in the past decade. According to IDC, global IT spending will exceed $2 trillion by the end of 2013. This is a potential year on year growth of approximately 6%. The IT spending from the emerging markets is expected to reach $730 billion by the end of 2013, which is an approximate 9% year on year growth. The current trends and the constant growth in IT spending should bolster International Business Machines Corp. (NYSE:IBM)’s earnings, and moving forward is expected to drive the entire industry.

INTERNATIONAL BUSINESS MACHS COR (NYSE:IBM)

Efforts to Bolster Profitability

IBM specifically stated in the 2015 road map that emerging economies and third platform services will play a crucial role in revenue growth moving forward. According to IDC, growth in emerging markets will account for 34% of the total global IT spending during 2013. Cloud computing also played an instrumental role in enhancing the IT solutions industry by offering SAAS (software as a service) and PAAS (platform as a service).

IBM has made special efforts to enhance its product portfolio offered on the third platform by launching the International Business Machines Corp. (NYSE:IBM) Docs, Smart Cloud Storage, IBM Digital Analytics Technology (assesses data to identify patterns) and MobileFirst (combination of cloud computing and big data analytics). Such initiatives started to exhibit results during last year as, the revenue from the business analytics division reported a 13% growth, while the cloud division saw a staggering 80% growth. Smarter planet also reported a strong growth of 25%, helping the EPS for IBM report relative growth even though the total revenue for the company dropped from 2011. These are high margin divisions; hence the total earnings still reported growth from the previous year even though overall revenues declined. In addition, revenues from the emerging markets also reported a 7% growth.

Leveraging the New Initiatives

It is crucial for International Business Machines Corp. (NYSE:IBM) to capitalize on the initiatives made in order to incrementally develop and increase revenues from other streams. With the introduction of the new SmartCloud storage, IBM can expect a robust growth in revenues from storage services as, the new service is radical and highly unconventional. Furthermore, Cloud storage is a highly cost friendly solution and an ideal choice for emerging economies. Going forward, emerging markets are expected to drive the storage services; hence IBM can leverage on the growing demand and stop the bleeding from this division. In addition, the Global Business Service division of IBM reported approximately $19 billion in revenues during 2012. This service is a heavy contributor to the overall revenues as it adds roughly 17% to the top line of IBM. GBS from IBM also reported a slight growth from 2011; however, the launch of big data analytics on cloud is expected to further bolster sales from this division.

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