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IBM's First Research Lab in Africa

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International Business Machines Corp.’s (IBM - Free Report) committed effort to expand in Africa solidified with the launch of its first research lab in the continent. The IBM research lab will be set up in Nairobi, Kenya, jointly with the Ministry of Information, Communication and Technology (“ICT”) in Kenya. This would be IBM’s 12th Global research lab facility.

IBM’s big data solutions, advanced analytics and cloud technologies would help the government to improve productivity and provide public services at a lower cost.

Moreover, IBM has plans to partner with different universities, companies and government agencies in different parts of Africa to encourage entrepreneurial growth, which would eventually accelerate the economic development.

Apart from setting up Intelligent Operation Centers in African cities, IBM would also deliver its Smarter Planet solutions to enable efficient and cost effective ways to manage city services.

Over the last couple of years Africa has emerged as the key market for IBM. The company continues to extend its support to a number of key sectors (primarily government, banking and financial services) across the continent. IT spending in the continent is expected to grow at a compound annual growth rate (CAGR) of 11.5% over the next four years. According to IDC, government IT spending in Africa and the Middle East will increase 15.1% year over year to $7.41 billion in 2012. We believe that IBM’s initiatives to expand in Africa positions it well to benefit from the increasing IT spending in the region.

Our Take

IBM has invested significant amount of capital to expand in Africa (approximately $300 million) to tap the continent’s IT market, which will expectedly increase to $12.5 billion by 2015. To expand its operations and boost demand for its service and solutions, IBM has also opened more than 20 offices across Africa.

We believe that IBM will continue to open branches in the underpenetrated areas of Africa, which will enhance its presence in the key growth market and support its global growth strategy over the long term. By 2015, IBM expects to expand its operations to at least 23 countries across the continent.

Despite the socio-political instability and underdeveloped economic conditions in Africa, we believe that IBM is well positioned to benefit from the tremendous growth opportunities in the region over the long term. IBM expects the growth markets (Asia-Pacific, EMEA and Latin America) to contribute 30.0% of its total geographic revenue by 2015, up from 21.0% in 2010.

We have a long-term Neutral recommendation on IBM. Currently, IBM has a Zacks #3 Rank, which translates into a short-term Hold rating.

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