Technology Services Nearly 30% of IBM’s Value
IBM (NYSE:IBM) sells middleware software and technology services such as outsourcing and integration to large and medium sized businesses worldwide and competes with firms like Oracle (NASDAQ:ORCL) and Red Hat. The firm is also among the global leaders in business systems and competes with hardware vendors like HP (NYSE:HPQ) and Dell (NASDAQ:DELL) in the server market as well as EMC (NYSE:EMC) and NetApp (NASDAQ:NTAP) in the storage market.
We have a $185 Trefis price estimate for IBM’s stock and estimate that the firm derives the bulk of its value from its middleware software and technology businesses which make up nearly 46% and 28% of the firm’s equity value respectively.
In the past, we have discussed about the significance of middleware software business to IBM and the firm’s focus to expand its offerings in the segment for future growth. (See IBM Smells Opportunity in CRM with Launch of Smarter Commerce Initiative)
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4 Components of IBM’s Technology Services
IBM’s technology services division is comprised of four sub-divisions – strategic outsourcing, integrated technology services, maintenance services and business outsourcing.
1) Strategic outsourcing services of IBM are aimed at providing services and insights to clients that enable them to reduce costs and improve productivity and efficiency through outsourcing of processes and operations. Strategic outsourcing is the largest of IBM’s service businesses and forms almost 53% of the firm’s Global Technology Services (GTS) revenues and 33% of its overall global services revenues.
2) Integrated Technology Services (ITS) offered by IBM support a company’s IT infrastructure with the use of IBM software and other resources. IBM’s ITS portfolio complements hardware offerings from system and technology and software business. The key offerings are in the server management services and system oriented architecture. The segment contributes nearly 25% of GTS revenues.
3) IBM’s maintenance offerings range from product maintenance to solution support in order to keep the client’s IT infrastructure constantly available and running. IBM has expanded its portfolio to non-IBM IT products too, which is bringing in more business than before. Maintenance services contribute about 18% of GTS revenues.
4) Business transformation outsourcing services revolve around standardization of processes and operations in order to make a business more effective. Business outsourcing services is a relatively small part of the IBM service offerings making only about 4% of GTS revenues.