International Business Machines IBM recently entered into an enterprise services deal with France-based, Cegid. Notably, Cegid offers cloud-based management solutions that enhance performance of the financial and accounting related processes. Per the agreement, IBM’s hybrid cloud architecture will provide a platform facilitating Cegid’s service delivery.

IBM’s hybrid cloud IT infrastructure as a service (“IaaS”), cloud capabilities, resources, among other services supported on IBM's Paris-based data center can be leveraged by Cegid.

Per a past deal in 2012, Cegid leveraged IBM France to develop a personalized private cloud. Cegid's Software as a Service (“SaaS”) business has been registering growth of greater than 30% since then. Cegid now projects its SaaS portfolio to quadruple business with IBM’s hybrid cloud architecture, by 2021. This strengthened partnership augurs well for the both the companies in the long haul.

"IBM's unmatched IT Infrastructure and cloud services capabilities provide the perfect foundation for Cegid to create and sell advanced cloud-based services to their clients," said Béatrice Kosowski, General Manager, IBM Global Technology Services, IBM France.

The tech giant's cloud migration methodology will assist Cegid to shift its IT infrastructure business and adopt hybrid cloud architecture. Cegid’s hybrid cloud is proposed to be located in France while being General Data Protection Regulation (“GDPR”) compliant.

We note that IBM’s stock has lost 7.1% year to date, against the S&P 500’s rally of 2.6%.

Efforts to Win Confidence of Europe Based Clientele

IBM’s robust familiarity with managing and implementing cloud platforms has been a tailwind. IBM cloud is witnessing significant adoption across businesses based in Europe.

Moreover, IBM announced 18 new availability zones across Europe, Asia and North America in the recent past. IBM obtained Germany's C5 attestation last month. Given the increasing data related regulations, including the likes of European Union’s (“EU”) GDPR, businesses are pursuing means to control their data better.

Additionally, IBM Cloud offers local EU-based support to its clientele by which access can be confined to solely EU-based IBM employees. These factors are aiding the tech giant expand its foothold in Europe.

IBM Cloud Gaining Traction in Europe

IBM’s sincere efforts seem to be materializing. The company recently entered into agreements with six major European companies leveraging IBM Cloud. The clientele, comprising Munich, Germany-based, Osram AG, France-based, CréditMutuel, Netherlands-based Koopman Logistics, among others, will benefit from IBM Cloud’s blockchain, analytics and artificail intelligence ("AI") capabilities.

For instance, Koopman Logistics will deploy IBM’s Blockchain technology. Crédit Mutuel will tap into IBM’s Watson virtual assistants for its major business segments. Osram AG will utilize the company’s hybrid cloud solution.

"Enterprises across Europe are gravitating to the IBM Cloud because it helps them modernize their existing infrastructures by gaining access to exciting technologies like AI, blockchain, IoT, analytics and more," said Sebastian Krause, General Manager IBM Cloud Europe.

The continued robust adoption of IBM Cloud is expected to drive IBM’s top-line growth. According to latest first quarter data from Synergy Research, IBM Cloud trails only Amazon’s AMZN Amazon Web Services ("AWS") and Microsoft’s MSFT Azure in the cloud infrastructure services market.

In the first-quarter of fiscal 2018, IBM’s cloud revenues surged 22% from the year-ago quarter to $17.70 billion. The annual run rate for cloud as-a-service revenue increased 20% at cc on a year-over-year basis to $10.7 billion. We expect that increasing adoption of company's cloud will further boost cloud revenues, going forward.

Our Take

Given the alluring capabilities offered by IBM's hybrid cloud infrastructure, the collaboration with Cegid presents win-win situation for both the parties. The company has been a pioneer when it comes to helping businesses digitally transform and evolve. The tech giant continues to bring innovation to its services to help the enterprises leverage emerging technologies, including the likes of cloud, AI, Internet of Things (“IoT”), among others.

IBM’s advanced AI, IoT, blockchain, cloud, machine learning ("ML") capabilities, among others makes its offerings well poised to gain robust adoption. The traction witnessed by the company’s Watson Ads offering is likely to boost the top line, consequently aiding IBM to better compete against peers.

Zacks Rank & Key Pick

IBM currently carries a Zacks Rank #3 (Hold).

A better-ranked stock in the broader technology sector is Micron MU, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The projected long-term earnings growth rate for Micron is 8.2%.

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