IBM And Workday Announce "Multiyear" Cloud Deal

International Business Machines Corporation (NYSE:IBM) and Workday, Inc. have signed a multiyear cloud deal.

As per the latest agreement, IBM cloud will become Workday’s main platform for development and testing and it will also provide “important capacity expansion in support of Workday's growing development and testing requirements.” However, the financial terms of the deal weren’t divulged.

Robert LeBlanc, Senior Vice President, IBM Cloud said that "leading enterprises like Workday continue to turn to IBM Cloud for its global reach, flexibility, and resiliency. Through a preferred cloud partnership with IBM, Workday can accelerate its innovation efforts to better serve clients around the world."

Earlier, IBM had employed Workday’s Human Capital management software for its workforce while last year it acquired Workday’s service partner Meteorix.

SoftLayer, acquired in 2013, is the primary infrastructure used for IBM’s cloud operations. The company has been rapidly expanding its cloud data center footprint worldwide following SoftLayer buyout. The company already has 50 data centers across the globe forming a part of the company’s ambitious $1.2 billion cloud data center expansion strategy.

Data centers form the backbone of IBM’s business and the company’s continuing investment reflects its commitment on developing the technology. In the second quarter of 2016, cloud revenues grew 30%. The annual run rate for IBM's cloud-based solutions is up $2.2 billion from the year-ago quarter to $6.7 billion.

We believe that IBM’s growth will be driven primarily by its focus on higher-growth and high-value segments particularly in the software sector despite the fact that the transformation in its business model is turning out to be a highly time consuming affair. IBM's growth initiatives, including its Big Data & business analytics, cloud computing, mobile, security and social business are expected to drive growth going ahead. As per a Jul 2016 IDC report, cloud IT infrastructure spending is expected to increase at a 5-year CAGR of 13.1%, hitting $59.5 billion by 2020. IDC estimates cloud IT infrastructure spending to be 48.7% of total expenditure on enterprise IT infrastructure by 2020. All these spell big opportunity for IBM.

In the second quarter, revenues from “Strategic Imperatives” grew 12% year over year to $8.3 billion. In the trailing 12 months, the company’s initiatives have generated about $31 billion in revenues. In the last reported quarter, Strategic Imperatives formed over 40% of IBM’s revenues.

At present, IBM carries a Zacks Rank #3 (Hold). Better-ranked stocks in the tech space are Facebook Inc (NASDAQ:FB) MeetMe Inc (NASDAQ:MEET) and VeriSign Inc (NASDAQ:VRSN) . While Facebook sports a Zacks Rank#1 (Strong Buy), MeetMe and VeriSign carry a Zacks Rank #2 (Buy).