IBM released its 2013 annual report over the weekend and with it, company CEO Ginni Rometty outlined the company’s strategy going forward highlighting three strategic areas Big Blue will focus on for growth: data, cloud and systems of engagement.
In a speech at IBM’s PartnerWorld Leadership Conference in Las Vegas last month, Rometty identified the three trends transforming the IT industry today as data, cloud and engagement. In a letter to shareholders included with the annual report, Rometty describe how the company plans to drive growth and profit through three key initiatives: Transforming industries and professions with data, remaking enterprise IT for the cloud and building systems of engagement leveraging enterprise security and data.
Rometty offered several examples of how IBM is poised to exploit these trends to remain a key player in the industry. However, to achieve its growth goals, IBM must focus on higher-value opportunities. This is expected to generate sufficient profit and cash to enable IBM to invest in future sources of growth and provide strong returns to shareholders, and to achieve the company’s 2015 operating earnings per share (EPS) target of $20.
In 2013 IBM invested $3.1 billion for 10 acquisitions, $3.8 billion in net capital expenditures and $6.2 billion in R&D.
“While making all these investments in IBM’s future capabilities, we were able to return $17.9 billion to you in 2013—approximately $13.9 billion through gross share repurchases and $4.1 billion through dividends,” Rometty said. “Last year’s dividend increase was 12 percent, marking the 18th year in a row in which we have raised our dividend, and the 98th consecutive year in which we have paid one.”
Yet, “while we continue to remix to higher value, we must also address those parts of our business that are holding us back,” Rometty said. “We have two specific challenges, and we are taking steps to address both.”
The first, she said, involves shifting the IBM hardware business for new realities and opportunities.
“We are accelerating the move of our Systems product portfolio—in particular, Power and storage—to growth opportunities and to Linux, following the lead of our successful mainframe business,” Rometty said. “The modern demands of big data, cloud and mobile require enterprise strength computing, and no other company can match IBM’s ongoing capabilities and commitment to developing those essential technologies. We also announced, in January, an agreement to sell much of our Intel-based x86 server business to Lenovo. This divestiture is consistent with our continuing strategy of exiting lower margin businesses, such as PCs, hard-disk drives and retail store solutions. But let me be clear—we are not exiting hardware.”
Moreover, she emphasized that IBM will remain a leader in high-performance and high-end systems, storage and cognitive computing, and will continue to invest in R&D for advanced semiconductor technology.
Meanwhile, “the second challenge involves the world’s growth markets. While IBM’s growth in Latin America and Middle East and Africa was strong, enterprise spending slowed in other key growth markets,” she said. “We are intensifying focus on new growth opportunities. Overall, the opportunity in the world’s growth markets remains attractive.”