Analysis of IBM’s Recent Dialexa and Databand.ai Acquisitions

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Earlier last week, IBM (NYSE: IBM) announced its third quarter results that outpaced market expectations. Under the leadership of Arvind Krishna, IBM has been focused on growing through acquisitions. It continued that mandate this quarter with two additional acquisitions.

IBM’s Financials

IBM’s third quarter revenues grew 6% to $14.1 billion, ahead of the Street’s estimates of $13.51 billion. Adjusted earnings of $1.81 a share were also ahead of the $1.77 analyst estimate.

By segment, revenues from the Software segment that includes Hybrid Platform & Solutions and Transaction Processing grew 7% to $5.81 billion. Revenue from the Consulting segment including Business Transformation, Technology Consulting, and Application Operations grew 5% to $4.7 billion. Revenue from the Infrastructure segment including Hybrid Infrastructure and Infrastructure Support grew 15% to $3.35 billion. Trailing twelve month revenues for the Hybrid cloud segment grew 15% to $22.2 billion.?

IBM did not provide any outlook for the fourth quarter. For the full fiscal year 2022, it now expects constant currency revenue growth above its mid-single digit model. It continues to expect additional 3.5 points contribution from incremental sales to Kyndryl.

IBM’s Recent Dialexa and Databand.ai Acquisitions

IBM continued its acquisition spree this year and recently announced the acquisition of Dialexa, a leading digital product engineering services firm that helps organizations drive innovation and achieve digital growth agendas. Founded in 2010, Dialexa is known for its suite of digital product engineering services that help organizations create innovative products to drive business outcomes. Its multi-disciplinary team of 300 product managers, designers, full-stack engineers, and data scientists advise and create custom, commercial-grade digital products for its clients. Dialexa’s client list includes names such as Deere & Company, Pizza Hut US, and Toyota Motor North America.

IBM plans to leverage Dialexa’s vision for delivering new digital products that could continue to scale and grow its global client relationships in the market. The Dialexa acquisition is expected to deepen IBM’s product engineering expertise and provide end-to-end digital transformation services for clients.

According to recent reports, the digital product engineering services market is estimated to grow to $700 billion by 2026. IBM will integrate Dialexa’s offerings with its consulting services to cater to this high value market. Terms of the acquisition were not disclosed. Prior to the acquisition, Dialexa was bootstrapped.

Earlier this summer, IBM also announced the acquisition of Databand.ai, a leading provider of data observability software that helps organizations fix issues with their data, including errors, pipeline failures, and poor quality. Founded in 2018, Databand.ai’s open and extendable approach allows data engineering teams to integrate and gain observability into their data infrastructure.

The acquisition will expand the observability capabilities for broader integrations across more of the open source and commercial solutions that power the modern data stack. By integrating Databand.ai with IBM Observability by Instana APM and IBM Watson Studio, IBM will be able to address the full spectrum of observability across IT operations. Prior to the acquisition, Databand.ai was privately held and had raised $14.5 million in funding from investors including Accel, Differential Ventures, Blumberg Capital, and Bessemer Venture Partners.

Additionally, IBM continues to focus on expanding independent software vendor (ISV) applications to IBM Z and Enterprise Linux. The?PartnerWorld?program allows third party software providers to get access to its Hybrid Cloud and AI technology, support, specialized tracks, training, and resources and reach into IBM’s customer network. IBM does not share the statistics around the partner program and usage, but it is continuing to drive growth in the ecosystem by adding new services. Recently, it announced the availability of NLP, text to speech and speech to text conversion libraries that can be directly embedded into applications.?These libraries will greatly benefit ISVs who are looking to embed AI directly into their software products and offerings. IBM believes that many more libraries will be released in the future to help its ISV partner ecosystem flourish.?

IBM’s stock is currently trading at $137.23 with a market capitalization of $124.07 billion. It touched a 52-week high of $144.73 in June and a 52-week low of $114.56 in November last year.

Disclosure:?All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article.

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