IBM's Butterfly Buy Boosts Storage

In a bid to diversify its storage solutions portfolio, International Business Machines Corp. (IBM - Analyst Report) has acquired Butterfly Software Ltd, a provider of storage planning software and storage migration tools. Butterfly Software will be integrated into IBM’s Software division. The financial details of the deal were not available.

Headquartered in the U.K., Butterfly Software provides software applications facilitating data storage, including the conversion of data backup from one format to another in a cost-effective manner. Butterfly provides its storage solutions through its network of vendors and resellers.

Of late, IBM has been acquiring companies in the storage space. Last month, IBM acquired Texas Memory Systems, a privately-held flash memory solutions provider. Texas Memory Systems provides its storage solutions to a number of industries that range from financial, high performance computing, telecom and e-commerce to health care.

IBM has been delivering cost effective, power-efficient enterprise storage technologies and solutions to various organizations. The integration of Butterfly Software and Texas Memory Systems’ offerings will strengthen IBM’s position in the storage market.

According to market researcher Gartner, IBM had a 13.8% market share in the external controller-based (“ECB”) disk storage market in the second quarter of 2012, which shrunk from 15.1% in the comparable quarter of the previous year. Moreover, its revenue from the storage segment dropped 2.4% year over year in a scenario where total revenue from the ECB disk storage market increased 6.7% over the same period of time. IBM’s traditional storage business suffered due to continuing shift to cloud based storage solutions.

We believe that IBM’s acquisition strategy coupled with its strong product pipeline and expansion into emerging markets will help it to achieve its long-term growth targets. Moreover, IBM intends to spend $20 billion through 2015 on acquisitions. We expect IBM to continue to acquire companies that are strategically important to achieve its 2015 goals.

However, we remain cautious on the overall IT spending environment and believe that macroeconomic concerns are the primary headwinds. Increasing competition from EMC Corp. (EMC - Analyst Report), Oracle Corp (ORCL - Analyst Report) and Dell Inc. (DELL - Analyst Report) is an added concern.

Thus, we remain Neutral over the long term. Currently, IBM has a Zacks #3 Rank, which implies a Hold rating in the short term.