International Business Machines (NYSE:IBM) has entered into a definitive agreement to acquire Texas Memory Systems (TMS), a Houston-based developer of high performance solid state device (SSD) memory solutions. The financial terms of the deal were not disclosed.
SSD or flash memory arrays are the next big growth opportunity in the storage market as they offer better performance and are more power efficient than conventional hard disk drives (HHDs). They are particularly useful in Big Data analytics and cloud computing environments which require quick access to cached data.
Flash memory arrays are also used to build hybrid storage arrays, a combination of solid state memory and conventional disk drive memory, which allow for quick data access while keeping costs low. EMC (NYSE:EMC) leads this market and, so, the TMS acquisition will put Big Blue in direct competition with the storage leader as EMC extends its SSD storage line with the XtremIO acquisition. 
Flash Memory Growth
Flash memory is becoming popular not only for use in phones, ultra-books and tablets, but also in mid and high-end storage arrays, and this is the market that IBM is looking to target. IDC estimates that the amount of solid state memory storage solutions shipped to businesses will grow significantly, reaching nearly 3 exabytes by 2016. IBM is likely to integrate TMS’s technologies into its storage, servers, software, and PureSystems offerings. EMC currently offers mid and high-end flash storage devices leveraging XtremIO’s technology and TMS will provide IBM with similar flash storage capabilities. Servers, Storage and Others constitute only 1 percent of IBM’s current Trefis Price estimate and we expect this division to grow, as the storage market grows.
Focus On Cloud and Analytics To Help Revenues
IBM’s focus on cloud computing and analytics is already paying off in the services space as these divisions have witnessed the highest revenue growth in Q2. Wins from the Sequoia super computer and the Big Data analytics project with Santam, a leading insurance company in South Africa, are driving its business and a hardware offering in this space is likely to help IBM cross-sell its cloud services with hardware products. We expect these businesses to drive growth in the second half of 2012 and have a direct impact on IBM’s Technology Services division, which constitutes around 23% of the company’s stock, by our analysis.
We currently have a $229 Trefis price estimate for IBM, which is about 20% higher than the current market price.Notes: