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IBM To Spend $1.2B For New Data Centers As Part Of Pre-2015 Spending Spree

Jan 17 2014, 12:11am CST | by , in News

IBM To Spend $1.2B For New Data Centers As Part Of Pre-2015 Spending Spree
Photo Credit: Forbes
 
 

A week after announcing it was moving the Watson computer system to New York City as part of a new $1 billion business unit, IBM is squeezing in another major business deal before it reports its fourth quarter earnings next week. Big Blue has announced it will spend $1.2 billion this year on up to 15 major data centers to boost its cloud footprint in the international market.

If that seems like a hefty price tag, it’s cheaper than the comparable price tag that IBM spent over the summer for a comparable number of data centers when it acquired cloud infrastructure company SoftLayer. With the new funds, IBM says it will end the year with 40 data centers across five continents, with the goal of at least four in each of what the company calls a “major geography.”

The company will first beef up its cloud centers in the United States, Europe and parts of Asia, then to Latin America and ultimately to the Middle East and Africa, where it’s building a presence but won’t be fully established until 2015.

IBM SoftLayer will now be the infrastructure behind the company’s cloud presence across the globe, with SoftLayer CEO Lance Crosby remaining on as head of that division of the company’s cloud unit. Under CEO Ginni Rometty’s 2015 roadmap for the company, IBM has committed to a public target of $7 billion in cloud revenue by next year.

“This move was months in the making,” Crosby tells FORBES. “From as soon as the acquisition happened, we were looking to things we could do.”

IBM will continue to offer multiple data housing options for its clients, but the company hopes that some potential clients will enter the fold if given the possibility to keep their data closer, and, in the wake of spying and hacking threats from multiple countries including the United States, more secure. Data on the new IBM SoftLayer network can be housed wherever clients choose; send it far away, and the company’s private network is supposed to keep it away from the public Internet and, IBM hopes, from curious eyes.

IBM has promoted its growth of SoftLayer heavily in recent weeks, declaring a milestone when SoftLayer reached over 2,000 new cloud clients in the months after the purchase and calling the unit a key infrastructure underpinning for many of its initiatives, including the new Watson unit to operate in New York’s Astor Place.

The company spends billions every year on research and development; the company has another $10 billion or so to spend on acquisitions this year after spending that much in the past few months. But $1.2 billion for new data centers, Crosby says, is several multiples of what SoftLayer, for example, would have been spending on its own. That many data centers took the then-independent company four years.

As part of its multi-year revival project it calls the ‘road map,’ IBM’s been slashing costs and headcount in units that struggle while spending heavily in areas where it sees a brighter future. Big data and analytics have been one major target of growth; last week the company announced a billion-dollar cash infusion to the unit. Cloud has been another priority, and this announcement means a combined $3 billion spend there for 2013-2014. To look back at areas of growth from the company’s uneven third-quarter earnings report in October, the next billions to spend could go to the Smarter Planet unit to beef up its Smarter Commerce offering, which was up 20% at the time.

Will that money come from acquisition, or will IBM be making more spending declarations soon? Given the earnings timing, the company may be set for a few weeks. But with the 2015 revenue targets looming, it would seem unlikely that this will be the last of IBM’s publicity-friendly investments for long.

Follow me on ForbesTwitter and Facebook for more tech coverage in startups, ad tech, enterprise software and venture capital.

Source: Forbes

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