IBM Shows Robust Growth In Cloud: Does It Matter?

This article was originally published by Seeking Alpha on May 19, 2014

By Sarfaraz A. Khan. Research Asst. Gohar Yousuf

IBM continues to show strong growth in cloud revenues after spending billions on developing its cloud offerings.

However, the company has a lot of work to do before this starts having any impact on its top line growth.

IBM has touted two major cloud deals, but these might not have any meaningful impact on the growth of its cloud revenues.

IBM Adjusts Its Portfolio Amid Shrinking Revenues

 This article was originally published by GuruFocus

By Sarfaraz A. Khan, Research Assistant: Gohar Yousuf
February 27, 2014

About nine years ago, IBM (IBM) and the Chinese tech giant Lenovo Group (LNVGY) captured global headlines when the Asian company purchased IBM’s PC business. The two are now back together on the negotiating table as IBM moves away from lower-margin businesses while it increases its focus on cloud computing.

IBM’s focus on the higher margin areas is a positive sign for the long term. However, the business is plagued with shrinking revenues as its growth in the new areas (such as cloud) has not been able to offset the declines coming from its old businesses (such as hardware).

Despite its woes, the Big Blue is backed by the legendary investor Warren Buffett who owns 6.3% of the firm and has been optimistic about its future.

An investment in IBM is a bet that the company will be able to turn itself around and as it does, it will emerge as a more profitable firm. Its shares are currently trading at $183.70, which implies a price-to-earnings ratio of just 12.12, making them considerably cheaper as compared to other players in the industry.

Hardware Divestment

IBM has finally agreed to to sell its low-end server business to Lenovo for $2.3 billion. This would be a big step for IBM that has been trying to shift its focus from the declining hardware business to the lucrative ... read full article at GuruFocus

Google’s Move Will Spark a New Price War

Google (GOOG) has ramped up the competition in cloud computing through the announcement of the general availability of Compute Engine. Google’s Compute Engine was initially launched about one and a half years ago but it was only available to some of its clients. With this push with cloud computing, Google seems intent on drawing large corporate customers as it aims to broaden its revenue base in the long run. Through its powerful brand, aggressive pricing and attractive features, Google believes that it will be able to emerge as a new major player in this market.

Google, however, has a long way to go before it becomes a real threat to the total dominance of Amazon (AMZN). The Compute Engine comes with agreement of performance, which guarantees that through this, the high volume workload will continue working 99.95% of the time, which is significantly above what is generally considered as the industry standard. In addition to that, the company has also cut the prices of its most popular Standard Instances, where clients can use Google’s computing power, by 10% in all regions. Moreover, the prices for Persistence Disks service have also been reduced by a massive 60% per gigabyte.

Besides the price cuts, Google has also added some new features to lure customers such as …. read full article at GuruFocus