International Business Machines Corp. (NYSE:IBM) has just committed $3 billion over the next four years to a new Internet of Things (IoT) unit. But, will that be enough to revive the IBM stock price and keep the company relevant?
After all, reviving IBM’s stock price is a tall order. Revenue has been on the decline for three straight fiscal years, and shares are badly in need of a catalyst. IBM stock has woefully underperformed the S&P 500 in the most recent three-year period, losing 22% while the benchmark index roared 48% higher.
So, what will this $3 billion project look like? Can it give the IBM stock price a boost?
Big Tech Company? You Better be in IoT
Big Blue simultaneously announced a partnership with The Weather Company today. The Weather Company will work with IBM to develop weather-related data services for a variety of industries, from insurance and retail to logistics and energy.
The partnership with The Weather Company will make IBM’s IoT offerings a compelling service for a number of businesses. Leveraging IBM’s cloud and The Weather Company’s data, the companies will be able to collect, report, and analyze real-time data from “more than 100,000 weather sensors and aircraft, millions of smartphones, buildings and even moving vehicles,” according to IBM’s press release.
That makes the end-product pretty attractive for insurance companies like Allstate Corp (NYSE:ALL) and Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B), who could potentially save millions from accurate real-time weather information and analytics.
IBM brags that the Weather Company partnership will offer a service that
“…enables insurance providers to send policyholders text messages that alert them to impending hailstorms – and safe locations – so vehicles can be moved before damage occurs. These insights have the potential to save insurers up to $25 per policyholder per year in hail-prone areas, or millions of dollars annually.”
Similar cost-cutting techniques can be implemented by retailers using the technology, as they tweak staffing levels and adjust supply chain dynamics in accordance with weather data. Utility companies could also save millions by using IBM’s IoT and cloud services to adjust production levels in accordance with anticipated consumption.
The list goes on. Great, right?
Unfortunately, jump-starting the IBM stock price won’t be that simple. A $3 billion investment sounds like quite a lot, but remember, it’s over the span of four years. Investors shouldn’t count on a $750 million per year commitment to be a game changer for a company that hauls in more than $90 billion annually.
Today’s announcements are simply a competitive necessity for Big Blue and the IBM stock price. It’s definitely not the only blue chip stock to invest big money in IoT and the cloud, with Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN) and Cisco Systems, Inc. (NASDAQ:CSCO) all vying to out-innovate and under-price one another.
If Big Blue doesn’t put up a fight and watches idly as competitors embrace IoT and cloud solutions, IBM stock will be in serious trouble. As those markets grow and develop, IBM will need to continue investing and leveraging useful partners if it’s serious about building long-term shareholder value.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
