Yahoo Finance IBM Fortifies Regional Presence With New Japan Innovation Hub
In a concerted effort to meet the growing demands of digital transformation, International Business Machines Corporation IBM recently expanded its Client Innovation Center (CIC) by launching its second Japan Innovation Hub in Cebu City, Philippines. The investment coincides with Cebu City becoming one of the emerging outsourcing destinations globally, making it imperative for the company to set up a regional digital transformation center to cater to the higher demand.
It is developing the Cebu Japan Innovation Hub in the Philippines CIC, which serves more than 200 clients worldwide with automation, analytics and AI services. The Philippines CIC supports clients across 15 languages, including English, Mandarin and Japanese, and has been assisting Japan-based clients with project delivery since 2016.
The new hub will be manned by Filipino workforce with specialized skillsets in data analytics, AI, hybrid cloud transformation, application management, supply chain, finance and procurement. Leveraging AI, ML and automation techniques, it combines human expertise and advanced technologies for faster response, efficiency and transparency through a holistic approach to secure hybrid cloud environments.
IBM expects its growth to be driven primarily by analytics, cloud computing and security services. A better business mix, improving operating leverage through productivity gains and increased investments in growth opportunities will likely drive its profitability.
However, IBM’s ongoing, heavily time-consuming business model transition to the cloud is likely to be a headwind in the near term. Although the public cloud market is expected to be one of the fastest-growing IT categories, with about 25% to 30% CAGR over the next five years, IBM is unlikely to keep up with its competitors. High integration risks from continuous acquisition sprees are potent challenges.
In addition, weakness in its traditional business and foreign exchange volatility remain significant concerns. Also, higher profit on lower revenues indicates that the company has been lowering costs to maintain profits. We believe that the scope for further cost-cutting is limited. Consequently, if costs are further reduced, there could be a negative impact on product quality. It could also lead to an additional delay in launching products, denting its long-term growth potential to some extent.
The stock has gained 4.4% over the past year compared with the industry’s decline of 7.2%. We are impressed with the inherent growth potential of this Zacks Rank #3 (Hold) stock.
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Key Picks
Arista Networks, Inc. ANET, sporting a Zacks Rank #1, is likely to benefit from the strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 17.5% and delivered an earnings surprise of 12.7%, on average, in the trailing four quarters.
It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.
United States Cellular Corporation USM carries a Zacks Rank #2 (Buy). Headquartered in Chicago, IL, U.S. Cellular is the fourth largest full-service wireless carrier in the United States. The company provides a range of wireless products and services, and a high-quality network to increase the competitiveness of local businesses and improve efficiency of government operations.
U.S. Cellular has taken concrete steps to accelerate subscriber additions and improve churn management. The company aims to offer the best wireless experience to customers by providing superior quality network and national coverage. It is well-positioned to support the investment required for network enhancements, including the deployment of 5G technology. The company is well-positioned for continued demand for broadband services.
Viavi Solutions Inc. VIAV, carrying a Zacks Rank #2, is another key pick. Headquartered in Scottsdale, AZ, Viavi is a leading provider of network test, monitoring and service enablement solutions to diverse sectors across the globe. The product portfolio of the company offers end-to-end network visibility and analytics that help build, test, certify, maintain, and optimize complex physical and virtual networks.
Viavi also offers high-performance thin film optical coatings for light-management solutions used in anti-counterfeiting, 3D sensing, electronics, automotive, defense and instrumentation markets. It delivered an earnings surprise of 9.1%, on average, in the trailing four quarters.
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