IBM Revenue Slide Continues, $1B Restructuring Charge Expected

By Darryl K. Taft  |  Posted 2014-01-21 Print this article Print

Schroeter said that although IBM’s hardware business suffers from “business model issues,” the company is not counting hardware out of the equation. “Our game plan for Systems and Technology is flat profit year-to-year” in 2014, but that is not where IBM plans to leave things. He said the System z business is cyclical and will come back around. And IBM is making other strategic moves to get its hardware house in order.

In its software segment, IBM’s Q4 revenues were $8.1 billion, up 3 percent from the fourth quarter of 2012. Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Social Workforce Solutions and Rational products, were $5.8 billion, an increase of 5 percent versus the fourth quarter of 2012. Revenues from the WebSphere family of software products increased 14 percent year over year. Information Management software revenues increased 5 percent. Revenues from Tivoli software increased 1 percent. Revenues from Social Workforce Solutions increased 2 percent, and Rational software was flat.

On the services front, IBM Global Technology Services revenues decreased 4 percent to $9.9 billion and Global Business Services (GBS) segment revenues were up 1 percent to $4.7 billion. IBM’s estimated services backlog at December 31 was $143 billion, up 2 percent.

“It still seems challenges from last quarter in hardware and storage, and growth markets – China -- continue and don't seem to be fixing till second half of 2014,” Christopher Ambrose, an analyst with Gartner. “I think the backlog in GBS is positive. The challenge is having enough growth in growth initiatives – cloud, analytics, mobile, Watson -- to offset hardware challenges.”

Schroeter said IBM would take a $1 billion “workplace rebalancing” or restructuring charge, “plus or minus $100 million,” in the first quarter of 2014. IBM took a similar charge in 2013 as the company cut headcount. Lee Conrad, national coordinator for the Alliance@IBM, an IBM employee organization, said his group received information that names of IBM employees slated to be laid off must be turned into senior management by January 24 for a resource action in STG.

Meanwhile, IBM’s move to address higher value trends is rearing fruit, Schroeter said. “Smarter Planet grew about 20 percent year to year, with strength across all areas, including smarter commerce, industry solutions, smarter cities and social business.”

Moreover, Schroeter noted that IBM is banking on data as a natural resource driving demand going forward, and big data/analytics providing the basis for competitive differentiation for IBM.

“In 2013, we grew business analytics revenue 9 percent led by GBS, and by software,” he said. “This is now nearly a $16 billion business for us, which you’ll recall was our original target for 2015. We’ve already taken our 2015 objective for business analytics revenue up to $20 billion. Our cloud solutions address the full scope of customer requirements, private clouds, public clouds and hybrid clouds, as well as platform and SaaS-based solutions. For the year, we delivered $4.4 billion of revenue for cloud-based solutions, that’s up 69 percent year to year, and within that, $1.7 billion was delivered as a service. As we’ve said in the past, there’s overlap between these initiatives. In total, software makes up about half of that combined content. This improves our business mix and contributes to our margin expansion.”

IBM last week announced a $1.2 billion investment in beefing up its cloud infrastructure, and just prior to that Big Blue announced a new IBM Watson Group with a $1 billion investment to fund advances in cognitive computing.


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