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IBM Inks Deal with Vodafone, Expands Cloud Presence in Europe

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International Business Machines Corporation (IBM - Free Report) recently expanded partnership with Vodafone Group Plc (VOD - Free Report) . Notably, the company entered into an eight-year agreement worth $550 million (around €480 million) with Vodafone’s B2B segment, Vodafone Business.

Per the deal, IBM’s advanced hybrid cloud platform, artificial intelligence (“AI”), Internet of Things (“IoT”) capabilities will aid Vodafone Business with digital transformation initiatives.

IBM on the back of its innovative technologies and cloud hosting skills, will also aid Vodafone Business with managed services to realize edge, Software Defined Networking (SDN) and 5G goals.

IBM and Vodafone Business intend to aid companies in eliminating the complexity in IT processes by providing a study data network facilitating seamless flow across connected institutes.

The new venture reportedly based out of London, which will function as a start-up, is anticipated to be operational as early as first half of 2019.

What’s Favoring IBM?

Notably, growing demand for data center virtualization, cloud computing and mobile traffic packet calls for robust IT infrastructure management services. This is where IBM solutions come in handy and are witnessing increasing adoption from network players.

IBM's strength in automation, cognitive and optimization capabilities enable enterprises to run business processes efficiently in a cloud infrastructure. The capabilities along with synergies from RedHat acquisition (pending) is anticipated to aid the company in winning more cloud deals.

In fact, the Vodafone deal is a big win for IBM as it bodes well for growing clout in Europe. The collaboration of expertise in connectivity and multi cloud domain, aimed at offering innovative digital services and solutions, is a positive.

Moreover, according to IBM's estimates, roughly 85% of the companies (which were surveyed) are utilizing multiple cloud computing platforms rather than depending on a single one. In fact, per the report, around 70% of enterprises are utilizing roughly over 15 cloud environments in a bid to avail advanced digital services.

These estimates enhance the opportunities in store for IBM. The company’s focus on transforming IT environment and enabling companies to embrace a democratized approach toward hybrid cloud model is a key catalyst.

Notably, Europe reportedly lags in 5G deployment and commercialization, compared with the United States and China. The fact that IBM services will aid Vodafone to modernize its 5G infrastructure andacceleratedeployment strengthens the prospects of both the players.

Moreover, digital transformation initiatives and hyperscale datacenter development are the primary catalysts behind cloud-based IT infrastructure expansion.

The incremental adoption of IBM solutions from the likes of Meiji Yasuda Life, Juniper (JNPR - Free Report) , Cegid, Novis, KMD, to mention a few, is expected to aid its financial performance.

In fact, the expanding customer base strengthens the company’s growth prospects in the digital transformation market, which per a MarketsandMarkets report, is envisioned to witness a CAGR of 19.1% to $493.39 billion by 2022 from $205.99 billion in 2017.

To Conclude

With dynamic improvement in machine learning (ML) and edge computing gaining steam, increasing spend on infrastructure products enhances the prospects of IBM in the deal.

However, rising competition from Amazon Web Services (“AWS”) and Microsoft's (MSFT - Free Report) Azure in the cloud domain is a headwind.

Zacks Rank

IBM carries a Zacks Rank #3 (Hold).

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

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