Can IBM’s Big Cloud Investment Help It Compete With Amazon?


International Business Machines (NYSE:IBM) has announced another big investment this week. After unveiling plans to pour $1 billion in cognitive technologies through a unit dedicated to the company’s smart computer named Watson, IBM is putting another billion into building 15 new data centers around the world dedicated to expanding the company’s cloud computing efforts.

IBM said in a press release that it plans to invest more than $1.2 billion to open 15 new data centers across five continents in addition to the 13 it already operates. The newest data centers will be located in China; Washington, D.C.; Hong Kong; London; Japan; India; Canada; Mexico City; and Dallas, Texas. IBM also said that it will undergo further cloud expansion in Africa and the Middle East in 2015.

“This investment includes a network of cloud centers designed to bring clients greater flexibility, transparency and control over how they manage their data, run their business and deploy their IT operations locally in the cloud,” the company said in a press release.

IBM has been hit hard by a slump in hardware sales as companies increasingly turn to cloud-based services for their IT needs. The company saw its shares post their first annual decline since 2008 last year, as the company consistently posted revenue declines throughout 2013.

Moving toward new areas of growth like cloud computing and cognitive technology is a step in the right direction for IBM, but it might take some time before those investments start paying off for investors. At an investor conference in December, Senior Vice President Erich Clementi said the company will likely continue to be adversely affected by a poor economy, which has resulted in decreased spending on IT. IBM’s revenue “depends on what the economic climate is, and that has not been very encouraging,” Clementi said at the time.

IBM has also been challenged by competition with (NASDAQ:AMZN) in cloud computing. Amazon arguably invented cloud computing with Amazon Web Services, and it won a $600 million cloud contract with the U.S. Central Intelligence Agency from IBM in the fall, even though IBM has more experience with government contracts.

After that loss, IBM acquired cloud computing company SoftLayer Technologies for $2 billion to help grow its cloud services to better compete with Amazon, in addition to releasing some confusing advertisements in India attacking its cloud rival and claiming that Amazon’s cloud is smaller than it actually is.

“IBM SoftLayer is able to deliver high performance services globally across the SoftLayer network. The combination of distributed local data centers and a global network allows clients to place data where it is required, when it is required as well as the ability to consolidate or aggregate data as needed. This provides optimized application performance and responsiveness,” IBM said of SoftLayer’s role in its latest investment.

Investing in data centers around the world is a good place to start if IBM can no longer count on receiving preferential treatment for contracts with the U.S. government. With both the anti-Amazon ads in India and plans to build data centers around the world, IBM is focusing on cloud growth outside the United States, although investors won’t likely see the benefits from these efforts right away.

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