Mainframe Platform a Boost for IBM

Despite a general archaic view, we think the mainframe continues to hold a critical place in enterprise computing. The inherent reliability and stability of the platform remain key reasons for its continued existence, and clients reinforce this when weighing future security, continuity, and cost considerations in their IT environments. For

We believe that the mainframe is best suited for certain enterprise tasks, such as batch processing or online transaction processing, and the embedded nature of the mainframe is evident from its long list of clients that run their essential applications on the platform. With the recent release of the z14, we believe the mainframe still has an important role in enterprise IT. Modernization and integration efforts are opening the platform to today's modern computing environments, without leaving the mainframe as an obscure, isolated piece of technology. In addition, pervasive encryption is a particularly interesting selling point for the z14 given heightened regulatory scrutiny associated with data protection.

We recently raised our fair value estimate for IBM to $168 from $158, as we're more optimistic about the ongoing relevance of the mainframe platform. With IBM trading at an approximate 8% discount to our fair value estimate, we see a modest margin of safety at current levels and would look to accumulate a position in the company upon a pullback.

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