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IBM Corp (IBM - Analyst Report) continues to expand in the cloud and recently announced an investment of $8.0 million for a new data center in Barcelona, Spain. The new data center is located in the same facility as the la Caixa data processing center, which is also managed by IBM.

The data center is IBM’s first in Spain and 26th all over the world. The state-of-the-art facility will provide advanced cloud computing services to IBM customers all over the world. Most recently, the company invested $17.0 million to open a second data center in Colombia.

The new center will help IBM to win customers in the region. IBM has already entered into a contract with Generalitat of Cataluna to manage one of its four data centers, which will move to the new facility. Moreover, the new data center will improve data processing services among la Caixa and IBM over the long term.

In Apr 2013, IBM opened a SmartCloud for Social Business Data Center in Germany, which will serve the needs of customers in Europe, the Middle East, and Africa. IBM’s new data center in Spain will further boost its penetration in the European cloud computing infrastructure services market going forward.

According to IDC, worldwide spending on public IT cloud services is expected to reach $100 billion in 2016, growing at a compound annual growth rate (CAGR) of 26.4% during 2012-2016. This is approximately five times the overall growth rate of the IT industry as organizations are increasingly taking to the cloud services model for IT consumption.

Data centers form the backbone of IBM’s business and the company’s continuing investment reflects its commitment on developing the technology. Cloud computing, being one of the four pillars of IBM’s growth plan, is expected to contribute revenues of $7.0 billion by the end of 2015. IBM’s cloud computing revenues surged 80% in 2012.

Additionally, the acquisition of SoftLayer Technologies will help IBM to compete with the likes of Amazon web services to win enterprise-level cloud computing customers. We also believe that IBM will continue to benefit from its other initiatives like smarter planet, business analytics and optimization over the long term.

However, stiff competition from a number of companies, including Hewlett Packard Co. (HPQ - Analyst Report), Microsoft Corp. (MSFT - Analyst Report) and Oracle Corp. (ORCL - Analyst Report) coupled with sluggish IT spending are the major headwinds in the near term.

Currently, IBM has a Zacks Rank #3 (Hold).

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