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IBM Signs a Deal Worth $320M, Strengthens Ties with KMD

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International Business Machines Corporation (IBM - Free Report) recently entered into an infrastructure outsourcing deal with Denmark-based KMD. The contract value is estimated around $320 million. Notably, IBM already offers mainframe services to the technology company under its current outsourcing contract.

Per the agreement, IBM will furnish KMD with infrastructure services through 2024. The company will offer IT infrastructure services comprising security, machine learning, automation, hybrid cloud, among others. This will consequently help KMD to offer its clientele across private and public sector, upgraded infrastructure solutions including networks and servers. KMD enterprise clientele will also benefit from digital transformation in their respective business processes.

IBM’s infrastructure capabilities will also aid KMD to increase foothold in financial market, particularly that of Nordics region. In order to realize its business goals, KMD is investing $80 million over the time span of next two years.

"Our multi-cloud capabilities provide a solid platform for KMD's business to grow and expand further," said Bart Van den Daele, General Manager, Global Technology Services, IBM Europe.

Following the news, shares of the company were up 1.9%, yesterday. Notably, IBM’s stock has lost 5.1% in the past year, against S&P 500’s rally of 14.9%.

Digital Transformation & IT Spending Trends Bode Well

Per a MarketsandMarkets report, digital transformation market is envisioned to grow at a CAGR of 19.1% to $493.39 billion by 2022 from $205.99 billion in 2017. Per ResearchAndMarkets data, global 5G market is expected to reach $251 billion by 2025, growing at a CAGR of around 97% from 2020.

According to the latest forecast by Gartner, worldwide IT spending is expected to grow 6.2% to $3.7 trillion in 2018, which will mark the highest annual growth rate since 2007. The research firm expects enterprise software spending to experience maximum growth in 2018, with an 11.1% increase. As a result, IBM seems well-positioned to take advantage of projected growth.

The company remains well poised to capitalize on growth prospects that the digital transformation market offers. Increasing IT spending is a positive.The aforementioned reports reinforce our belief that IBM’s services gaining adoption hold promise.

Our Take

IBM has been a pioneer when it comes to helping businesses digitally transform and evolve. The tech giant continues to bring innovation to its services to help the enterprises leverage the emerging technologies, including the likes of cloud, artificial intelligence (“AI”), Internet of Things (“IoT”), among others.

IBM’s advanced AI, IoT, blockchain, cloud capabilities makes its offerings well poised to gain robust adoption. The traction witnessed by the company’s services boost the top line which consequently act as a tailwind for the bottom line.

We believe the ongoing contracts with its notable customer base will eventually help IBM to compete against peers.

Zacks Rank & Key Picks

IBM currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector are Seagate (STX - Free Report) , Mellanox (MLNX - Free Report) and Micron (MU - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The projected long-term earnings growth rate for Western Digital, Mellanox and Micron are 19%, 15% and 8.2%, respectively.

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