IBM Unveils Futuristic New Growth Driver

Much progress has been made in the transformation of IBM (NYSE: IBM) to focus on what it calls its business "strategic imperatives": cognitive computing analysis, the cloud, data security, social networks and mobile applications.

That change in its business model is the reason why IBM has experienced years of quarterly decline in revenue. Such drastic changes require time to take hold, especially for a company of this size. And as IBM demonstrated with the introduction of its growing Q network, it continues to address futuristic technology.

Jetsons, here we come

Today's computers store and process data based on a series of bits, each with a value of 1 or 0. But quantum computers, which until recently were theoretical, process data using qubits, in which they can represent both a 1 as a 0 in at the same time, and all intermediate states. The result is a computer capable of providing solutions to enormously complex problems at speeds never before seen.

IBM has been exploring quantum computing for a while, but I was not ready to present it to the world, until now. The Q network has not only forged numerous partnerships to explore its quantum computing capabilities, but has also signed as clients some of the world's leading institutions.

JPMorgan will work directly with IBM scientists and will use open source developer tools accessible to the cloud to explore applications related to financing, such as risk analysis. The technology leader Samsung wants to determine how quantum computing can improve its design and manufacture of semiconductors.

The German automotive giant Daimler AG believes that quantum computing has potential in the routing of autonomous car fleets, as well as a tool that can lead to improved manufacturing. The commercial introduction of the quantum computer based on IBM's 20 qubit cloud is a victory in itself. From an investor's perspective, even more intriguing are the multiple industries from which IBM's new customers come.

There are almost limitless applications for a tool with the expected power of quantum computing, which provides IBM with a wide audience of potential customers. It is not difficult to imagine clients signing their cloud offerings, quantum computing, data analysis and security as a package.

Gathering steam

The incursions he is making in quantum computing should eventually boost IBM's growing strategic imperatives business. But the market remains focused on total revenues rather than the results of strategic imperatives, which helps explain why IBM's stock is traded at a meager 10.8 times earnings.

Although the total revenues of the last quarter of $ 19.2 billion were stable, the $ 8.8 billion in sales of combined strategic imperatives were an increase of 11% compared to the previous year. Almost half of the revenues of IBM's core segments - four million dollars, to be precise - come from its growing sales in the cloud. IBM now has an annual revenue rate in the cloud of $ 15.8 billion, an increase of 25% year-over-year.

One of the few providers that generates more revenue in the cloud than IBM is its partner and competitor for a long time, Microsoft (NASDAQ: MSFT). With an annual cloud execution rate of $ 20.4 billion, Microsoft is as focused as IBM in a growing market share. Microsoft also hopes to gain momentum in the cloud of quantum computing. However, unlike IBM, Microsoft's adventure in technology is not ready for commercial use.

Another thing that the two technological pillars have in common are their respective efforts to increase sales in the cloud by focusing on software as a service (SaaS). Most experts agree that software solutions and services delivered through the cloud offer are the most positive for providers. Nearly two-thirds of IBM's cloud revenue in the last 12 months - $ 9.4 billion - was related to the service.

IBM CEO, Ginni Rometty, is also falling short. Although your spending was flat last quarter, your company has reduced your total expenses by 8% in 2017. The good news is that cutting costs clearly have not impeded IBM's research and development efforts.

Taking into account its low valuation, the growth it has, an industry leading dividend yield of 3.9% and an unparalleled set of cutting-edge solutions, both value and income investors should take a long look at IBM.

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