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IBM Allocates $200 Million on IoT Initiatives in Munich


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International Business Machines Corp (IBM - Analyst Report) is accelerating investment on its Internet of Things (IoT) initiative. The company recently announced that it has allocated $200 million to the new global IoT headquarters in Munich. The fund will help IBM address growing client demand for solutions based on IoT and Artificial Intelligence (AI) technologies.

IBM has designated $3 billion as investments to bring Watson cognitive computing to IoT. We believe that the company’s focus on offering cognitive solutions based on the cloud platform is a key catalyst. Per IBM, it has 6000 global clients who are using Watson IoT solutions and services, a significant increase from 4,000 just eight months ago.

Expanding Customer Base

IBM’s aggressive investments on developing cognitive solutions continue to attract customers from varied fields. German industrial heavyweight Schaeffler has signed a multi-year strategic partnership agreement to accelerate the digital transformation of its entire operations and customer solutions using Watson's cognitive intelligence.

IBM Watson’s cognitive computing capabilities are now used in commercial drones. Netherlands-based Aerialtronics recently announced that its drones will be used to provide high-quality inspection services for global organizations across multiple industries.

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Watson continues to make inroads in the Healthcare sector as well. Philadelphia-based Thomas Jefferson University Hospitals Health and IBM are collaborating to launch cognitive hospital rooms powered by IBM Watson IoT. The primary aim of the program is to enhance patient experience and help bring deeper levels of personalized, swift and responsive care.

Cognitive Solutions Key Catalyst

In the second quarter of 2016, Cognitive Solutions revenues grew 3.5% year over year to $4.7 billion. Cloud was up an impressive 54% in the reported quarter. Per IBM, global IT spending on cognitive solutions is anticipated to increase at a much faster rate as compared to traditional IT spending over the next decade.

Based on these, IBM now expects low single-digit revenue growth over the long term. Pre-tax income growth is expected to be in the mid single-digit, while earnings growth is estimated to be in the high single-digit range. Free Cash Flow realization is anticipated to be in the 90% range in the long run.

Moreover, IBM’s expanding cognitive solutions offering and growing cloud computing market share will boost its competitive prowess against the likes of Microsoft (MSFT - Analyst Report) and (AMZN - Analyst Report) .

Zacks Rank & Key Picks

IBM has a Zacks Rank #4 (Sell). Hewlett Packard Enterprise (HPE - Snapshot Report) is better-ranked stock with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here. Hewlett Packard’s current year estimates have increased 4 cents to $1.92 over the last seven days.

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