IBM Revenue Woes Continue Amid Transition

By Darryl K. Taft  |  Posted 2015-01-20 Print this article Print
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“We expect the launch of a new mainframe along with the momentum of Power 8 to generate some growth” in IBM’s hardware business, Schroeter said.

According to Jennifer Hamel, an analyst with Technology Business Research, “IBM’s 4Q14 results reflect the company’s continued shift toward higher-value cloud, analytics and mobility engagements and away from commoditized businesses such as customer care BPO and System x servers. Reorganizing its workforce and maintaining heavy investments around next- generation solutions weigh on profits in the short-term, but position IBM for long-term market differentiation as clients evolve how they prefer to engage with IT services providers.”

Hamel added that as IBM pursues this path, its competitors will continue to win battles for traditional application implementation and outsourcing engagements. Yet, IBM’s momentum with hybrid cloud integration and managed services wins indicates that IBM’s investments in cloud, analytics and mobility solutions are catching on with customers.

“I think it's fair to call 2014 a transition year for IBM,” said Charles King, principal analyst at Pund-IT. “The company has obviously continued to struggle in what have been some of its strongest traditional businesses. That, along with the divestment of some $7 billion in business lines -- including the System x server group, microelectronics and the call center services org that together accounted for a half a billion dollars annual loss -- meant that IBM had a lot on its plate for most of the year.”

But there were also some bright points, King noted. Among them is “the continuing healthy growth of its strategic priority areas -- cloud, analytics, mobile, social and security -- which now account for about a quarter of IBM's annual revenues. There was also solid performance from the services organization -- which accounts for about half of IBM's overall revenues -- in carrying a $128 billion business backlog.”

IBM continues to work on its transformation. Schroeter spoke of how in 2014 IBM was successful in bringing Watson’s capabilities to the enterprise and created a burgeoning market for cognitive computing.

“Overall, I expect shareholders will be keeping a close eye on IBM during 2015,” King said. “Hardware will be on the short list of things to watch -- as in how well the company's latest z13 mainframe systems do, and whether efforts around Power Systems, including the OpenPOWER Consortium, gain traction. Plus, I believe many people will be curious to see if the good news in the strategic priority areas continues.”

King said the challenge is that “most of these areas aim to deliver sustainable benefits and growth, not the sort of quarterly pick-me-up that some speculators and institutional investors are fixated on. The fact is that CEO Ginni Rometty and the rest of IBM's leadership are intent on rebuilding the company for long term success. That may run contrary to current Wall Street fashion but shareholders should profit from IBM’s efforts.”

IBM’s Schroeter noted that IBM feels “great about how we’re exiting 2014. We got a lot done in 2014. We will exit 2015 with a higher- value and higher- margin business.”


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