GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

IBM and HP Are Looking at Diversification, But Where Should You Invest?

April 28, 2014 | About:
jaggom

jaggom

0 followers

Hardware giants like International Business Machines (IBM) and Hewlett-Packard (HPQ) are diversifying into more areas to propel growth given the slowing personal computer market. Cyber security and cloud computing are among the most talked-about markets in IT solutions growing at a rapid pace.

The products such as mobile communications, cloud computing, and security solutions are being focused upon by IBM since they are higher margin markets with higher growth products. Acquisitions and partnerships are considered as the ideal ways to step into such markets. IBM’s rock-solid cash position has enabled it to make a few acquisitions and its established brand image has enabled it to enter into agreements with leading players.

IBM acquired Xtify to broaden its portfolio in mobile communications software. The mobile payment transactions might exceed $235 billion as forecasted by Gartner. The bump in the number of mobile users resulted in the rise in transactions. The market is forecasted to be worth $998.5 billion by 2016 at a CAGR of 83.7% from 2012 to 2016.

The acquisition of Xtify by IBM would place it in a better position to capture this booming mobile communications and payments market. IBM recently acquired Now Factory, making a big leap into the mobile analytics market. The mobile analytics software market will experience an exponential growth of mobile gaming and video streaming in the future with IBM aggressive on this opportunity.

IBM is making huge investments in the cloud computing platform with its dedication reflected by the synergies with companies providing cloud services. The cloud market is expected to grow by 126.4% globally, with growth in the European market to be around 300%. IBM plans to build upon this growth by venturing into Europe with its investments and partnerships.

IBM is investing $8 million in Spain for cloud data centers. It is confident about its returns on such investments across the globe, targeting around $7 billion in revenue by 2015 just from the cloud computing market.

Avalon’s CEO Damir Mujic considers IBM's solution as the best one to fit their needs. IBM's System X server platform, along with IBM networking, provides a reliable, flexible and cost-effective IT infrastructure that scales with growth and can handle diverse workloads. In addition, with IBM, it avoids integration issues arising when dealing with different companies delivering different parts of an overall solution.

The declining PC market has severely hurt Hewlett Packard. The company’s future is in the dark. The company is trying to add a few high margin services to its portfolio to drive growth.

HP is on a drive to strengthen its portfolio with security services for the web, mobile, and BYOD (bring your own device) environments to boost its performance. The company released its TippingPoing next generation firewall last year. Since, cyber security and threats are becoming one of the major concerns for corporate customers so, TippingPoint could benefit as it addresses this market.

HP has two choices to select from either to market TippingPoint as an independent product or join hands with various mobile companies, data centers, and app providers to boost its sales. Partnerships could help increase the company sales.

Conclusion

IBM is successfully transforming itself into a services company, but HP has just started following this route. On the other hand, HP is running in losses and its CAGR for the next five years is low at 0.67%. Hence, investors having a higher risk appetite could consider HP for their portfolio.


Rating: 0.0/5 (0 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK
Email Hide