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Alibaba (BABA) Teams Up With Siemens to Offer IoT Solutions

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Alibaba’s (BABA - Free Report) cloud computing unit recently signed a Memorandum of Understanding (MoU) with Siemens to modify the infrastructure of industrial Internet of Things (IoT) in China.

Per the deal, Siemens has selected Alibaba Cloud to roll out its IoT products in China by utilizing Alibaba’s robust cloud infrastructure.

Siemen’s cloud-based open IoT operating system called MindSphere will be available on Alibaba Cloud in 2019. This will aid the development of Industrie 4.0-solutions which in turn will improve the automation and digitization of Chinese industrial sector.

We believe the latest move bodes well for the expansion of Alibaba’s cloud solutions portfolio and fortify its presence in the cloud industry.

MindSphere provides connectivity options for machines, factories, products and systems. Further, it delivers advanced analytics and closed-loop innovation with complete digital twin solutions. This will aid the companies in improving their business and production efficiency with these IoT solutions.

Consequently, the availability of MindSphere is likely to boost the adoption rate of Alibaba Cloud.

IoT Market Holds Promise

Per the report from IDC, the worldwide spending on IoT is expected to grow at a CAGR of 14% between 2017 and 2021 and to touch $1.1 trillion by 2021.

According to the latest report from MarketsandMarkets, the global industrial IoT market is expected to grow at a CAGR of 7.39% between 2018 and 2023 and to reach $91.4 billion by 2023 from $59.5 billion in 2017. This can primarily be attributed to the ongoing industrialization in the Asia Pacific.

Moreover, countries like China, India and Japan are likely to be the primary contributors to this trend.

The robust spending projection reflects strong demand for IoT solutions that bodes well for Alibaba. We believe the company is well poised to reap benefits from this market with the addition of MindSphere to its portfolio.

Intensifying Cloud War to Hurt

Alibaba’s expanding solutions portfolio bodes well for its improving market share and competitive position in the cloud market.

However, rising competition from big players in the market remains a major concern. Growth of Alibaba Cloud has been hindered by the dominance of Amazon’s (AMZN - Free Report) AWS and Microsoft’s (MSFT - Free Report) Azure.

Moreover, the existing IoT solution portfolio of these companies provides them the first mover advantage. Siemens’ digital products especially MindSphere, are already being offered through AWS and Azure.

Additionally, Alphabet’s (GOOGL - Free Report) Google also offers IoT solutions via its Google Cloud IoT platform to provide operational efficiency to the businesses.

Notably, the late entry of Alibaba into the IoT cloud solutions space might be detrimental to its market prospects. This is likely to affect its top-line growth.

Currently, Alibaba carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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