IBM Targets Chinese Clouds

International Business Machines (IBM - Analyst Report) is targeting the city of Wuxi as its next big cloud-computing hub. This small Chinese city holds great potential for IBM. The project is expected to attract billions of dollars in government funding to stimulate the area’s tech-focused economic growth.

IBM’s cloud computing enables the delivery of personal and business services from remote, centralized servers transporting computing resources and bandwidth (the "cloud") to any device, anywhere in the world. Wuxi will serve as a datacenter for this purpose. IBM is eyeing 2000 or so software vendors in the region, who will conduct operations from the Wuxi datacenter and share a portion of their revenue with IBM. All IBM cloud computing centers follow the same model, generating a portion of the revenue from local vendors.

The Wuxi deal may only represent just 20 million Yuan initially. However, if we consider the fact that the next phase of the project is covered by the Chinese Government’s $600 billion stimulus plan announced last November, the revenue opportunity looks much bigger. While the initial project was funded by the local government, the next phase of the Wuxi project will be funded by the stimulus fund from China’s central government.

The company is looking for 100 other cities in China and 200,000 independent software vendors as part of its cloud-computing expansion program in China. We believe that in the days to come, cloud computing will be a key component of IBM’s top line.

We maintain our Buy rating on IBM stock.

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