IBM Capitalizes on a Need to Make Cities Smarter

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IBMLast week, IBM (IBM) announced its Intelligent Operations Center for Smarter Cities, aimed at providing in one easy package a software platform for cities to implement which will help monitor and manage city resources. We believe this could help boost IBM's middleware business, which accounts for just under half of our $185 Trefis price estimate for IBM's stock -- which is just about 15% above the current market price. IBM competes with firms like Oracle (ORCL) and Red Hat in the middleware market.

Bundled Software Allows Easier Deployment

The Intelligent Operations Center can monitor data from a number of business applications and real-time sensors such as video feeds or street sensors used by police, transit authorities and city officials to yield key performance measures that can provide insights for better resource management.

In an attempt to cut downthe costs of consulting and integration required to set up the various systems, data sources and sensors that are currently established in most large cities, IBM bundles a range of software items like databases, application servers, data integration software and data management software as well as business intelligence and real-time monitoring applications into a comprehensive package.

By bringing everything together, IBM aims to make these technologies more affordable and easier to deploy for cities, especially as many states and cities are struggling with budget constraints.

We believe this could provide a boost to IBM's sales as the easy deployment helps it overcome what has been one of the biggest concerns of large packages like ones designed for cities.

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As such, if IBM's middleware license revenues grow to $12 billion by the end of the Trefis forecast period instead of current forecast of growth to $10 billion, this adds just under 10% to our $185 Trefis price estimate for IBM implying a potential total return of just under 25%.

IBM will also offer repeatable "solutions" for common urban challenges (loosely similar to apps on mobile platforms) in the future. The first three solutions, which will be released during the next year or two, will focus on public safety, water management, and transportation monitoring.

See our full analysis of IBM.

Trefis is an online investment research platform targeted towards individual and professional investors. Trefis also includes a community of users that can create and share their models and analysis on trefis.com.


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