How Will IBM Be Affected By New Chip That Simulates Brain Function?

NEW YORK (TheStreet) -- International Business Machines Corp. (IBM) has developed a new chip that the information technology company says possesses features of the brain, including functions that recognize patterns and identifies objects while using less electrical power than conventional hardware, the Wall Street Journal reports.

Called TruNorth, the company has received $53 million in funding since 2008 to develop the chip from the Pentagon's Defense Advanced Research Projects Agency.

TrueNorth uses 5.4 billion transistors, four times more than a typical PC processor. IBM says it's a break from the standard designed used in most computers, the Journal said.

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Utilized for IBM by Samsung Electronics  (SSNLF), the company is talking to potential partners about ways to bring the chip to the market. 

Shares of IBM closed down -0.90% to $184.30.

TheStreet Ratings team rates INTL BUSINESS MACHINES CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate INTL BUSINESS MACHINES CORP (IBM) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income, notable return on equity, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • INTL BUSINESS MACHINES CORP has improved earnings per share by 41.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, INTL BUSINESS MACHINES CORP increased its bottom line by earning $15.02 versus $14.41 in the prior year. This year, the market expects an improvement in earnings ($17.90 versus $15.02).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the IT Services industry average. The net income increased by 28.2% when compared to the same quarter one year prior, rising from $3,226.00 million to $4,137.00 million.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the IT Services industry and the overall market, INTL BUSINESS MACHINES CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • Net operating cash flow has increased to $3,579.00 million or 12.75% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -3.17%.
  • The gross profit margin for INTL BUSINESS MACHINES CORP is rather high; currently it is at 54.45%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 16.97% trails the industry average.
  • You can view the full analysis from the report here: IBM Ratings Report

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