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IBM boosts number of data centers as it steps up cloud push against Amazon

IBM is planning to triple its data center capacity in the U.K., the technology firm said on Tuesday, following the likes of Facebook and Google to commit investment to the country following the Brexit vote, as it looks to boost its challenge to rivals Amazon and Microsoft.

It marks IBM Cloud's largest commitment to one country at a single point in time though the company did not disclose the size of the investment. IBM is set to open four new data centers in Britain, which will bring its total to six. The first facility will open at the end of December with the other three going live in 2017.

Sebastian Krause, general manager for IBM Cloud in Europe, said that the U.K. is an "attractive market" to invest despite the country's decision to leave the European Union (EU).

"The growth rates for cloud in the U.K. should be around 25 percent … up to 2020, so it is a significant opportunity, specifically if you consider the European cloud market is about $100 billion in size … and the U.K. is approximately a third of that," Krause told CNBC in a TV interview on Tuesday.


A woman walks past the IBM logo
Sean Gallup | Getty Images
A woman walks past the IBM logo

After the results of the EU referendum in Britain on June 24, the pound has fallen around 17 percent against the dollar. But Krause said the devaluation of sterling was not a factor in IBM's decision to expand its data centers in Britain.

"We are evaluating areas where to invest in, we are observing the market quite intensely over time, so this decision has been evaluated for quite some time prior to the Brexit," Krause said.


Changing legal requirements

Even though Krause did not say the pound's weakness was a factor for investment, analysts said that it was likely to have played a part. But another major reason towards the investment is the "huge demand" for cloud services, according to Neil Campling, head of global technology, media, and telecoms research at Northern Trust Capital Markets.

"Data growth shows no sign of slowing," Campling told CNBC.

There is also a broader trend globally to have data stored locally or closer to businesses to comply with privacy and security laws, Campling added.

Krause said that IBM's data center expansion will help it deal with any regulatory changes that requires localized data.

"Our policy and our strategy with regards to deploying data centers has always been to bring the data centers into the countries. So therefore, with six data centers in the future in the U.K. as well as 10 data centers in the rest of Europe… as well as more than 50 data centers around the world, I think we are very well prepared for those security discussions," Krause told CNBC.


IBM focused on cloud

IBM's investment follows notable other commitments by U.S. technology firms to the U.K. Last week, Google confirmed its plans to build a new London headquarters and generate 3,000 jobs. And on Monday, Facebook announced it would be boosting its U.K. headcount by 500.

Under chief executive Ginni Rometty, IBM has migrated toward cloud-based services offering users big data analytics tools and artificial intelligence (AI) through its machine learning platform known as Watson. IBM said cloud revenue jumped 44 percent in the third quarter of 2016.

Amazon Web Services (AWS) – the e-commerce giant's cloud business – accounts for 45 percent of the worldwide Infrastructure as a Service (IaaS) market, eclipsing the combined share of Microsoft, IBM and Google, according to Synergy Research. IaaS is a form of cloud computing, which Amazon helped to create, that provides virtual computing resources online for the public. Amazon also leads in the Platform as a Service (PaaS) market which refers to cloud platforms that developers can build applications on top of.

However, IBM is ahead in the managed private cloud market, according to Synergy Research, which is cloud services dedicated to a single organization rather than public.

But IBM is facing stiff competition from the likes of Microsoft, Google and even Alibaba. The latter announced on Monday that it is planning to launchfour new data centers across the world.


IBM UK clients

Organizations such as British retailer Boots as well as sporting tournament Wimbledon are already using IBM's cloud services and AI capabilities.

As part of the investment announcement, IBM also said that Thomson, part of the U.K.'s largest tour operator TUI, is using its AI platform Watson to trail a new virtual travel assistant in the form of a chatbot. Users can send messages to the bot and receive replies.

IBM now has 16 data centers across Europe that form part of the firm's more than 50 facilities globally.