Summary
- The management team at AT&T announced a multi-year strategic alliance between it and IBM covering a variety of topics.
- This multi-billion dollar opportunity appears to be opening the door to a $1 trillion, or more, market.
- Investors should watch these two firms and how they integrate their offerings, since success here could offer both significant upside potential.
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In this age of rapid technological innovation, startups aren't the only companies trying to grab a piece of the next big thing. Big players of industry, like AT&T (T) and IBM (IBM) are out there, laying valuable foundations, and at times even working together to capture parts of what won't be a multi-billion dollar space but rather a multi-trillion dollar one in the decades to come. In its latest press release, for instance, AT&T announced that it and IBM have struck a multi-year strategic alliance slated to be worth 'billions' and that will allow both players to grab hold of a sizable portion of paradigm shift occurring across industries of all kinds. If both players can work together well to capitalize on this opportunity, the prospects for their shareholders could be meaningful long term.
A look at the announcement
According to a press release issued by AT&T, both it and IBM have entered into a multi-year strategic alliance whereby AT&T will use IBM's offerings to 'modernize' its internal software applications, essentially allowing AT&T to migrate its Business Solutions' systems to the cloud. As part of this arrangement, IBM will provide AT&T Business Solutions with 'infrastructure' to help support the company's applications. This will include, but not be limited to, the open-source offerings provided by Red Hat, which IBM just completed the acquisition of in a deal valued (excluding net debt) $34 billion.
Contrary to what this may sound like (a one-way deal), the fact of the matter is that the deal flows both ways. Based on the details of the press release, AT&T will also provide to IBM various services, including access to its 5G network, Edge Compute, and IoT (Internet of Things). This deal will also include Red Hat's multi-cloud capabilities, and during the course of this relationship, AT&T will be considered IBM's primary provider of software-defined networking.
While all of this information sounds nice, both companies were vague on specifics. No mention of how many years was made regarding the duration of the relationship, and no mention was made regarding just how many billions of dollars this alliance would be worth. What's more, as with so much in this space, mentions of integrations of technologies without more detail can feel tenuous at best and, at times, perhaps more like fluff to please investors than anything else. That said, what info has been provided by AT&T does, when taken into context with how both firms operate, give investors an interesting glimpse into where the firms are likely headed.
