International Business Machines Corp. (NYSE:IBM)’s last quarter results were weak due to the softness in selling of its software and System z mainframe business. The company’s first quarter revenue declined by 5.1% compared to the first quarter revenue in 2012. The other factors include the depreciation of Yen against the Dollar and the meager 1% growth in China.
The company is taking a lot of steps to offset this slowdown. These includes acquisitions in the rapidly growing business segment of Analytics and Cloud, which has shown impressive growth. In this article I’ll be discussing some of these steps in detail.
Investments in Cloud, Analytics and Smart Planet will propel future growth
International Business Machines Corp. (NYSE:IBM) has reported impressive revenue growth from its Cloud, Smart Planet and Analytics business segments. Smart Planet revenue increased by 25% in first quarter compared to the first quarter of 2012. Cloud revenue increased by 70% in the same period, while Business Analytics revenue grew by 7%. We believe that these segments will drive future growth.
To consolidate its position in the Cloud segment, the Company recently acquired SoftLayer. This acquisition will help IBM increase its revenue in the storage segment.
Divesting and rebalancing resources will help improve margins
International Business Machines Corp. (NYSE:IBM) in its vision program has stated that it will focus on businesses with high margins and spin off operations with low margins. The company has been divesting its businesses that have low margins. This has impacted the revenue in the short term, but the company has been able to increase its margin.
We believe the divestment and the resource allocation will help the company concentrate on its high margin business and will bring in more operational efficiency.
US immigration bill will help IBM increase margin
The US immigration bill, if passed in its current form, will have a positive impact on the US based IT companies, and will hit the India based ones. With already shrinking margin in the ADM business, this will further pressure the margins of Indian IT bigwigs.
It will also give the US based companies an opportunity to improve upon their margins, as their H1-B holder employees are much fewer in number than the specified percentage in the bill. So this will help International Business Machines Corp. (NYSE:IBM) issue more H1-B visas without incurring extra cost.
Hewlett-Packard Company (NYSE:HPQ) has undergone frequent changes in its leadership in the last few years. With a stable leadership in place now, the company can focus on improving its business performance.