Warren Buffett’s IBM play about ‘smart’ infrastructure, not high-tech stock

Billionaire investor Warren Buffett’s decision to invest more than $10 billion this year in IBM is more about having a stake in the modernisation of national infrastructure than have a foothold in the high-tech sector, according to Washington Post.

The Oracle of Omaha now holds 5% of IBM, making him one of the biggest investors in the computer giant – having previously shunned investing in high-tech companies.

IBM is currently investing heavily and expanding in its Smarter Planet initiative, which aims to use digital technology and digital data to improve systems and processes to modernise national infrastructure such as roads, waterways and urban areas.

In the area of office design, IBM is looking to develop greener building that run more efficiently and, “more importantly, communicate with and about their various systems”.

One of IBM’s own projects involves a 306,520-square-metre manufacturing site in its Rochester, Minnesota location, which had more than 250,000 sensor points with the potential to report information.

To help solve the problem of what to do with all of this data, IBM implemented its Intelligent Building Management solution in partnership with Johnson Controls, which helped achieve incremental, year-on-year energy savings of about 8%.

In another project, IBM helped the Shin Kong Wu Ho-Su Memorial Hospital in Taiwan increase revenue by 5% each month and increase bed utilisation from 70% to 92% by implementing two systems – Executive Information System (EIS) and a Quality Indicator System (QIS), which gave insights into performance in real time.

The use of such smart systems was recently called “the next big thing” by The Economist magazine.

The Washington Post has likened his investment in IBM to his decision in 2009 to invest $34 billion in the Burlington Northern Santa Fe railroad.

“Railroads just a few years ago were viewed as a stodgy, less-than-glamorous area in which to invest. Yet, Buffett held true to his investment vision, choosing to view railroads as a play on the nation’s infrastructure and as a proxy for US economic growth,” the newspaper said.

“If you want to invest in the future of America, then invest in railroads. In real life, as in the board game Monopoly, railroads are valuable properties.”

IBM’s decision to develop smart infrastructure technologies is expected to put it in demand from countries like China, where national infrastructure is struggling to cope with massive growth in urbanisation efforts.

Should IBM be able to tap into markets like China, the earnings potential would be significant, something Buffet clearly knows.

Buffett’s MidAmerican Energy Holdings, the utility arm of investment giant Berkshire Hathaway empire, has also nabbed Topaz Solar Farm in the biggest acquisition of a single photovoltaic project anywhere.




Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer


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