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Is IBM’s (IBM) standard response to its six-quarter run of humdrum sales to make a new billion dollar investment?

DH Kass

January 21, 2014

2 Min Read
IBM39s Erich Clementi says the vendor is banking on cloud services and software
IBM's Erich Clementi says the vendor is banking on cloud services and software.

Is IBM’s (IBM) standard response to its six-quarter run of humdrum sales to make a new billion dollar investment?

The vendor late last week kicked off yet another billion dollar business, adding to similar investments in its Watson unit earlier this month and flash storage last year with a $1.2 billion pledge to build 15 new data centers around the world to expand its SoftLayer cloud services into new markets.

IBM is struggling in multiple markets at the moment and its SmartCloud business still is looking for ways to attact customers with heavyweights Amazon (AMZN) Web Services and Microsoft (MSFT) Windows Azure kicking sand in its face. That’s where SoftLayer, with its attractive IaaS business, can make a huge difference—hence, the large investment.

The expansion could be a boon for the vendor’s SoftLayer channel partners, as new facilities in Canada, China, Hong Kong, India, Japan, London, Mexico City and Washington, D.C.—with drawing-board plans to add sites in EMEA next year—could serve to catalyze hosted infrastructure and cloud sales into new geographic regions. IBM already maintains 12 global data centers worldwide and SoftLayer operates another 13 such facilities.

By IBM’s own estimates, it pegs the cloud opportunity worldwide reaching $200 billion by 2020, prodded by businesses and the public sector deploying cloud services to run their operations.

“IBM is continuing to invest in high-growth areas,” said Erich Clementi, IBM Global Technology Services senior vice president. “Today’s announcement is another major step in driving a global expansion of IBM’s cloud footprint and helping clients drive transformation.”

Since 2007, IBM has invested more than $7 billion in 15 acquisitions to build its cloud portfolio. By far the big fish is the $2 billion it paid last year to reel in SoftLayer and the 2,500 new customers and mature channel program that tagged along with the transaction. IBM has made it clear that SoftLayer resides at the hub of its cloud portfolio.

A byproduct of IBM’s investment might be that it sparks cloud adoption and helps new businesses gain traction, said Ann Winblad, Hummer Winblad Venture Partners co-founder and managing director.

“By investing in the cloud ecosystem, IBM not only makes it easier for enterprises to adopt cloud and drive innovation, but also helps new companies of all sizes get off the ground more quickly,” she said.

It will be interesting to see much of a boost IBM’s cloud investment delivers to the vendor’s sales figures. In Q3, IBM claimed about $1 billion in cloud revenue, but its numbers may be not quite as sturdy as the vendor suggests, with only half of that emanated from cloud services and the remainder coming from hardware and software sales. Because IBM doesn’t specifically break out cloud revenue, it’s difficult to tell how the company is doing there. To that end, the SEC began an investigation last May into how IBM reports cloud computing revenue.

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About the Author(s)

DH Kass

Senior Contributing Blogger, The VAR Guy

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