IBM Retail Deal Keys on Profit Over Hardware
NEW YORK (TheStreet) -- International Business Machines
On Tuesday, IBM divested control of its Retail Store Solutions unit to Japan's Toshiba TEC for $850 million, one more signal from IBM that data analysis -- including a retailer data and analytics initiative called Smarter Commerce -- trumps hardware manufacturing.
Like a similar divestiture of its PC business to Lenovo in 2004, IBM's deal shows that it would rather tilt its revenue to high margin consulting and data analysis operations, while allowing others to compete in manufacturing hardware that may increasingly become commoditized, otherwise dubbed by IBM as its "Smarter Planet" strategy.
IBM invested heavily in its Smarter Commerce initiative by way of a December 2011 acquisition of cloud services specialist DemandTec and 2010 purchases of Sterling Commerce and Coremetrics.
Big Blue's multi-decade turnaround has moved it from manufacturing tech hardware toward the IT services market, where its global services consulting unit contributes $60.2 billion to overall revenue of nearly $107 billion, as of 2011.
IBM will also be exiting a point of sale business where it competed against the likes of Toshiba , NCR
"In our view, IBM's POS
IBM's track record of divestitures and acquisitions may be used as a model by other tech giants like Hewlett Packard and Research In Motion
Meanwhile, a flurry of security and cloud computing deals by Dell
As part of a sweeping overhaul, Hewlett Packard announced in March that it will merge its printer and PC divisions. Meanwhile, the world's largest PC maker is trying to figure out how to use a $10.3 billion acquisition of British software giant Autonomy to help grow revenues that fell in the fourth quarter on declining PC sales, which IDC said fell 5% industry-wide in the U.S last year. In recent years, a string of other acquisitions such as 3Com, Arcsight and 3Par have bolstered HP's non PC-businesses.
Research In Motion is reportedly hiring investment bankers, as the BlackBerry maker tries to weather a declining smartphone market share to Apple
By acquiring IBM's Retail Store Solutions business, which earned roughly $1.15 billion in 2011 and had 1,000 employees, Toshiba TEC will become the world's leading point of sale systems company. As part of the acquisition, Toshiba TEC will also enter a multi-year agreement where the company will become a customer of IBM's Smarter Commerce businesses, a retail-focused component of its larger Smarter Planet push that is expected to add $20 billion in analytics, cloud computing and emerging markets revenue by 2015.
IBM has invested $2.5 billion and 1,000 consultants in its Smarter Commerce initiative, said IBM spokesperson Steven Eisenstadt. In divesting its Retail Store Solutions operations to Toshiba TEC and adding them as a customer, IBM will further add to that commitment. As part of the deal, Toshiba TEC will acquire an 80.1% stake in the RSS partnership and IBM will hold a 19.9% stake that will eventually be owned by Toshiba.
While the RSS business includes the hardware and software products that retailers use to handle transactions and inventory -- in addition to analytic software to track buying habits -- it's the latter that IBM is betting on as consumers increase their use of mobile and Web networks to make purchases. That market opportunity, branded as Smarter Commerce, builds IT processes that organize customer data so that company executives can come up with procurement, marketing, sales and customer service strategies.
"Smarter Commerce represents a significant market opportunity for IBM and requires a strong network of business partners to scale. That's why we decided to focus on our sweet spot (managing transactions and data and applying analytics) while Toshiba TEC focuses on and drives the systems part," said Eisenstadt of IBM.
While Marshall of ISI Group notes that IBM has continued a consistent trajectory of delivering strong revenue and profit growth, he maintains a neutral outlook on the company's shares, which are near an all-time high -- preferring the depressed valuation of Hewlett Packard
On news of the deal, IBM shares rose over 1.5% to $205.87. Year-to-date IBM's shares are up nearly 12% and traded at an all-time high over $210 earlier in April.
-- Written by Antoine Gara in New York