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IBM Inks Deal With AT&T on Cloud, 5G, IoT & Edge Computing

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International Business Machines Corporation (IBM - Free Report) recently expanded partnership with notable wireless service provider and communications service carrier, AT&T Inc. (T - Free Report) .

This deal strengthens the “existing relationship” between the companies as AT&T Business already serves as IBM’s global networking provider. Per the terms of the latest deal, IBM will make AT&T Business “primary provider of software defined networking.”

However, the financial terms of the deal and tenure of the partnership have been kept under wraps. Nevertheless, an IBM spokesperson revealed to CNBC, that the agreement is spread “over several years” and has raked the company “billions of dollars.”

Notably, the press release mentions that IBM and AT&T inked deal in IBM's second-quarter of 2019. We anticipate more financial details on the deal during IBM’s second-quarter earnings conference on Jul 17.

The latest agreement comes on the heels of recent closure of Red Hat acquisition, which is a key catalyst behind the deal win.

Adoption of IBM’s cloud technologies and Red Hat’s open source platform’s capabilities by AT&T is expected to reinforce investors’ optimism in the stock. Notably, shares of IBM have returned 29.3% year to date, outperforming S&P 500’s rally of 20.3%.

Exploring the Deal in Detail

According to the new multi-year agreement, IBM's cloud and IT infrastructure services will be leveraged by AT&T Communications. This will facilitate migration of “AT&T Business Solutions' internal software applications” to IBM Cloud.

Moreover, access to Red Hat's OpenShift and Enterprise Linux platform will allow AT&T to accelerate complex workloads. This is expected to consequently aid AT&T to expand enterprise clientele.

Additionally, IBM and AT&T intend to develop robust technologies pertaining to edge computing platforms to assist enterprises harness the benefits of 5G, IoT devices and smart sensors and edge compute platforms.

Key Takeaways

AT&T deal is a major win for IBM as it bodes well for expanding presence in North America. The collaboration of expertise in connectivity and multi cloud domain, aimed at offering innovative digital services and solutions, is a positive.

Markedly, growing demand for data center virtualization, cloud computing and mobile traffic packet calls for robust IT infrastructure management services. In fact, per IBM’s research, “80% of business workloads have yet to move to the cloud, held back by the proprietary nature of today's cloud market.”

Moreover, 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 is anticipated to aid the company in winning more cloud deals.

These factors favor adoption of IBM solutions among network players. Similar deal wins from Vodafone, Juniper (JNPR - Free Report) remain quintessential in this regard.

Notably, the pioneer of the open source development model, Red Hat is leaving no stone unturned to expand Red Hat Enterprise Linux (RHEL) customer base and exposure to hybrid cloud infrastructure.

These initiatives are expected to aid IBM bag more clients, and expand presence in cloud infrastructure services market, currently dominated by Amazon Web Services (AWS) and Microsoft's (MSFT - Free Report) Azure.

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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