IBM Pushing IT Services To Less-Developed Industries

IBM Pushing IT Services To Less-Developed Industries

February 09, 2009: 12:16 AM ET


SAN FRANCISCO -(Dow Jones)- International Business Machines Corp. (IBM) is trying to persuade customers in a range of industries to bring digital capabilities to old-style infrastructure.

The Armonk, N.Y.-based computer, software and services giant is launching an initiative this week to highlight how it is tailoring existing software services and adding some new capabilities such as smart-meters and radio-frequency identification, or RFID tracking systems, to target new industries.

The company wants to persuade customers in sectors such as the oil and gas industries, utilities and manufacturing, who historically have been less up to speed with I.T., to revamp their systems to digitize decades-old infrastructure.

IBM, the world's largest I.T. services organization by revenue, already sells automation, information management and analytics tools to a wide range of industries. But Steve Mills, who heads IBM's software business, said there are new and untapped opportunities in these industries.

"Banking and money [are] highly electronic industries," Mills said in an interview. "I.T. has a strong footprint in banking. It has a much more modest footprint in utilities, transportation, chemicals and manufacturing.

"In some cases these are relative greenfields for I.T." Mills estimated that by targeting such industries, IBM and its partners and competitors could double the global I.T. market opportunity from its current size, which he estimates at $1 trillion.

For the most part, IBM is simply repackaging and selling existing products in new ways, creating a new arm of its huge services organization to target specific industry verticals. It will be launching some new products, including smart meters for electrical grids, and automation software.

Analysts believe the strategy of going after industries which are less penetrated from an I.T. standpoint could help accelerate IBM's growth during a year in which most I.T. companies are expecting to see flat or declining revenues.

"This is an opportunity for IBM to engage more directly with different types of business decision-makers and get better access to their budgets," said Mary Johnston Turner, an analyst with research firm IDC.

"Almost anything can have a sensor in it, from a car to a mobile phone," Turner said. "What IBM is saying is 'we know how to do this'. It's a very interesting long-term opportunity."

IBM didn't disclose the value of the investment or the amount of revenue it expected it to generate. IDC has estimated that the market for digitizing physical infrastructure, on a global basis, could be worth $122 billion by 2012, but it didn't specify how much of this IBM was in line to win.

Like most I.T. companies, IBM's shares were hit hard during the financial turmoil of 2008, but so far in 2009 its shares have rallied 14%, driven largely by stronger than expected fourth-quarter profits and a 2009 outlook that beat Wall Street's expectations. Shares closed Friday up 4.6% at $96.14.

-By Jessica Hodgson; Dow Jones Newswires; 415-439-6455; jessica.hodgson@ dowjones.com