Yahoo Finance IBM Mulling Divestiture of Weather Business for Core Focus
Per The Wall Street Journal report, International Business Machines Corporation IBM is reportedly mulling the divestiture of its weather business to focus on core operations. According to people familiar with the proceedings, the transaction is likely to generate about $1 billion in sale proceeds if consummated.
In 2015, IBM acquired The Weather Company to leverage its own cloud infrastructure to provide accurate weather forecasts around the globe that aggregate more than 25 billion forecasts a day. The company expected to profit from the wave of data-crunching software by improving the Weather Company’s modeling technology and developing a new generation of predictive applications for incremental revenues.
However, over a period of time, IBM has streamlined its operations in order to focus on its core hybrid cloud and artificial intelligence businesses. It has spun off its legacy Managed Infrastructure Services business in a bid to accelerate its hybrid cloud growth strategy, with a focus on enabling clients with accelerated digital transformation. It has further restructured its segments post the separation of its managed infrastructure services business from Kyndryl.
IBM expects 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.
The company has expanded its partner relationships in AI, network automation and security to help the telecommunications industry evolve as 5G and Edge Computing take center stage. It has extended the secured cloud services for business enterprises while improving their performance through reduced latency and higher data security features.
In addition, the acquisition of Red Hat has bolstered the Open Hybrid architecture initiative of the company. The deal marks IBM’s largest acquisition ever, and the combined company is likely to alter the dynamics of “the cloud market for business.” Specifically, IBM hopes to leverage Red Hat to help it become the world’s largest hybrid cloud platform provider.
More than 4,000 clients are utilizing Red Hat and IBM’s hybrid cloud platform. We remain bullish regarding improving the utility of hybrid cloud services based on the architecture built by IBM and Red Hat by notable clients, including American Express, Bharti Airtel, Vodafone, Banco Sabadell, Broadridge Financial Solutions and Caixa Bank. Red Hat’s expanding foothold across the Asia Pacific is also anticipated to bolster IBM’s TAM (total addressable market).
The stock has gained 1.5% over the past year against the industry’s decline of 7.7%. 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 14.2% and delivered an earnings surprise of 14.2%, 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.
Juniper Networks, Inc. JNPR carries a Zacks Rank #2 (Buy). It has a long-term earnings growth expectation of 7% and delivered an earnings surprise of 1.6%, on average, in the trailing four quarters.
Juniper is leveraging the 400-gig cycle to capture hyperscale switching opportunities inside the data center. The company is set to capitalize on the increasing demand for data center virtualization, cloud computing and mobile traffic packet/optical convergence.
Splunk Inc. SPLK, sporting a Zacks Rank #1, is another key pick. San Francisco, CA-based Splunk provides software solutions that enable enterprises to gain real-time operational intelligence by harnessing the value of their data. The company’s offerings enable users to investigate, monitor, analyze and act on machine data and big data, irrespective of format or source, and helps in operational decision making.
Splunk’s software offerings enable users to have deep insight of their data on a real-time basis, thereby making the operational decision-making process faster. It delivered a trailing four-quarter earnings surprise of 131.1%, on average. Splunk has a long-term earnings growth expectation of 24.1%.
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