(IBM) IBM Set to Acquire Software Developer Worklight

IBM Corp. (IBM) recently announced that it is set to acquire mobile application and infrastructure software developer Worklight. The financial terms of the deal remained undisclosed but it is expected that the deal will close by the first quarter of 2012.

New York-based Worklight is a privately held firm with a research & development hub in Israel. Worklight’s software caters to multiple verticals such as financial services, retail and healthcare. Other than IBM, the company has a strong clientele, including big names such as FIS Software, Best Western and AT&T Inc. (T).

Worklight’s software enables enterprises to create their own applications, which are compatible with different mobile platforms, including Apple’s (AAPL) iOS, Google’s (GOOG) Android 4.0 Ice Cream Sandwich and Microsoft’s (MSFT) Windows Phone 7.5 Mango. Worklight also offers HTML 5 development tools as well as mobile middleware and security technologies and management tools.

As smartphone and tablet adoption continues to increase, demand for enterprise mobile applications is expected to increase manifold going forward. As per a recent study conducted by IBM, more than 75.0% of global Chief Information Officers (CIO) identified spending on mobility solutions as one of their top priorities.

We believe that the acquisition will not only expand IBM’s mobile services offerings but also position it well to meet this strong demand going forward.

Worklight software also facilitates secure linking of an enterprise’s IT system with its different stakeholders, particularly employees, who are increasingly using their personal mobile devices to the workplace (Bring Your Own Device trend). A rapid increase in the mobile workforce, which is expected to reach 1.19 billion by 2013, has compelled enterprises to look for ways to integrate these personal devices within its own IT systems. Since personal devices will come with personal data and preferences, security is likely to become an increasing concern for enterprises.

Most recently, IBM launched new software known as Endpoint Manager for Mobile Devices that helps enterprises to better manage and secure their mobile workforce. The software extends security intelligence to deal with the growing threats from mainstream adoption of the BYOD trend.

We believe that the addition of Worklight solution will enable IBM to offer a consolidated solution to its clients, which will effectively manage and secure all endpoints between mobile applications and enterprise’s IT systems.

We believe that the Worklight acquisition will not only boost IBM’s mobile enterprise customer base but also enhance its position as compared to other software developers such as Appcelerator, Pyxis and Rhomobile. We believe that IBM’s strong balance sheet will help it to continue to pursue accretive acquisitions in this emerging market going forward.

Recommendation

We believe that IBM remains well positioned for long-term growth based on its four key growth initiatives: smarter planet, growth markets, business analytics and cloud computing, which are expected to deliver at least $50 billion in revenues by fiscal 2015. We believe that IBM’s strong product pipeline, expansion into emerging markets and continuous acquisitions will help it to achieve this target going forward.

However, we remain cautious on the overall IT spending environment and believe macroeconomic concerns will continue to hurt IBM’s growth in the first half of 2012. Moreover, increasing competition in most of IBM’s markets also induce us to remain on the sidelines.

Thus, we remain Neutral over the long term (6-12 months). Currently, IBM has a Zacks #2 Rank, which implies a Buy rating over the near term (1-3 months).

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