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International Business Machines Corp. (IBM - Free Report) unveiled new software and also created a new consulting practice for the emerging Smarter Commerce category, which helps companies swiftly adapt to increased customer demands in the current era of mobile and social networks.

The increased usage of smartphones, laptops and PDAs has made mobile communications and social networking the primary source of business communication and interaction amongst customers and enterprises.

Currently, 70% of the customers make their first approach toward a product or service online, while 64% of the same make their first purchase because of a digital experience. It is also noteworthy that of the two billion people availing the Internet, more than 600 million are on Facebook.  The upsurge in mobile purchases, which is tripling annually to $119 billion in 2011 is further evidence emphasizes the situation.

This poses serious challenges for businesses, as customers expect swift response from the manufacturers, marketers and distributors. As the markets become consumer driven, companies are forced to adopt new consumer-friendly policies, where product selling becomes a part of an ever-evolving set of services they perform for their customers, performed in sync with their business partners.

Retailers were the first to face the rising power of consumers but now companies in a wide array of industries such as manufacturing, telecommunications, financial services and others have also started adapting to these changes.

IBM, through its Smarter Commerce initiatives, is helping enterprises respond to this market shift in real-time and automate the marketing, selling and fulfilment functions, while creating a global brand presence.

IBM also remains focused on reducing inefficiencies in the complex network of transactions that make up global commerce and its supply chain, at a time when existing enterprises are adversely impacted by economic and competitive pressures.

A recent survey conducted by IBM Institute for Business Value estimates that much of the $15 trillion in system inefficiencies on the planet comes from waste in inventory backlogs, failed product launches, wasted materials and ineffective marketing campaigns.

Based on its WebSphere Commerce platform, IBM is providing new cloud analytics software that enables companies to monitor their brand’s presence in real-time through social media channels, thereby gaining a superior reach for their new services and product offerings. This helps companies to redesign their marketing strategy and sales initiatives, which in turn drives top-line growth at reduced costs over the long term.

IBM’s new software will help companies design and deliver a personalized shopping experience, and organise campaigns and promotions for new services and products online or through mobile devices.

Currently, IBM is supporting more than 2000 global and local brands such as global food producer Danone, McKesson Corp. (MCK - Free Report) , Moosejaw Mountaineering, Staples Inc. , US Lumber and 1-800-FLOWERS (FLWS - Free Report) to ensure that they are targeting the right audience at the right time; engaging buyers seamlessly in all the right channels and mediums; maintaining inventory levels precisely aligned to demand and automating their supply chains for maximum efficiency. 

IBM expects to create an extensive ecosystem of partners, suppliers and customers with new skills to connect the entire Smarter Commerce ecosystem, based on this new integrated software and services.

Our Take

Smarter Commerce is an important initiative taken by IBM and has a market opportunity of roughly $70 billion. The company has invested $2.5 billion for developing on-premise and cloud-based software, which were acquired through the Sterling Commerce, Unica and Coremetrics acquisitions in 2010.

IBM plans to spend approximately $20.0 billion in acquisitions over the next 5 years, which is expected to contribute $0.90 in earnings per share each year. The company expects smarter planet revenues to increase at a 25.0% CAGR to $10.0 billion by 2015.

Moreover, business analytics is expected to deliver $16.0 billion, while cloud computing is estimated to deliver $3.0 billion in revenues by 2015. Together these growth initiatives are expected to deliver $50 billion in revenues by 2015.

We expect IBM to proceed with its strategy of accretive acquisitions, particularly in its business analytics segment in the near term that can be easily integrated into its current business, thereby expanding its product portfolio and leveraging its global scale.

We have a long-term Neutral recommendation on IBM, as increasing competition remains the primary headwind over the long term. Further, sluggish growth in the services market and the company’s dependence on enterprise spending patterns may hurt profitability going forward.

We currently have a Zacks #3 Rank for IBM, which translates into a Hold rating over the short term.

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