Close
  • Latest News
  • Artificial Intelligence
  • Video
  • Big Data and Analytics
  • Cloud
  • Networking
  • Cybersecurity
  • Applications
  • IT Management
  • Storage
  • Sponsored
  • Mobile
  • Small Business
  • Development
  • Database
  • Servers
  • Android
  • Apple
  • Innovation
  • Blogs
  • PC Hardware
  • Reviews
  • Search Engines
  • Virtualization
Read Down
Sign in
Close
Welcome!Log into your account
Forgot your password?
Read Down
Password recovery
Recover your password
Close
Search
Logo
Subscribe
Logo
  • Latest News
  • Artificial Intelligence
  • Video
  • Big Data and Analytics
  • Cloud
  • Networking
  • Cybersecurity
  • Applications
  • IT Management
  • Storage
  • Sponsored
  • Mobile
  • Small Business
  • Development
  • Database
  • Servers
  • Android
  • Apple
  • Innovation
  • Blogs
  • PC Hardware
  • Reviews
  • Search Engines
  • Virtualization
More
    Subscribe
    Home IT Management
    • IT Management

    IBM’s Financial Struggles Continue in Q3 2014

    Written by

    Darryl K. Taft
    Published October 20, 2014
    Share
    Facebook
    Twitter
    Linkedin

      eWEEK content and product recommendations are editorially independent. We may make money when you click on links to our partners. Learn More.

      IBM continued on its course of trying to move to higher-value business as its sales in more traditional sectors continue to drop.

      On its third-quarter earnings call, IBM spoke in terms of “continuing operations,” meaning operations of the parts of the company not being divested. Third-quarter net income from continuing operations was $3.5 billion, compared with $4.1 billion in the third-quarter of 2013, a decrease of 17 percent.

      Meanwhile, total third-quarter revenues from continuing operations of $22.4 billion were down 4 percent from the third-quarter of 2013.

      The company also announced the divestiture of its semiconductor business to GlobalFoundries, a deal that will have IBM paying GlobalFoundries $1.5 billion over three years as Big Blue also continues its previously announced $3 billion investment over five years for semiconductor technology research to lead in the next generation of computing. The agreement with GlobalFoundries will enable IBM to further focus on fundamental semiconductor research and the development of future cloud, mobile, big data analytics and secure transaction-optimized systems.

      “We are disappointed in our performance,” Ginni Rometty, IBM chairman, president and CEO, said in a statement. “We saw a marked slowdown in September in client buying behavior, and our results also point to the unprecedented pace of change in our industry. While we did not produce the results we expected to achieve, we again performed well in our strategic growth areas—cloud, data and analytics, security, social and mobile—where we continue to shift our business. We will accelerate this transformation.

      “We are executing on a clear strategy that is moving IBM to higher value, and we’ve taken significant actions to exit nonstrategic elements of the business. This includes the announcement that we will divest semiconductor manufacturing to focus on research and development that will differentiate our systems. We will continue to make the investments and the changes necessary to manage our business for the long term. And we remain fully committed to returning significant value to shareholders through dividends and share repurchase.”

      Meanwhile, uncharacteristically joining Martin Schroeter, IBM senior vice president and chief financial officer, on the company’s earnings call, Rometty, assured financial analysts that IBM is properly positioning itself for a turnaround. “We are managing this company for the long term,” she said. “Our company is fundamentally better positioned than a few years ago.”

      Asked by one analyst why this time should be any different than other moves IBM has made to right itself—including workforce reductions and divesting lower-value businesses—Rometty spelled out the strategic investments IBM has made over the past year, including the $1.2 billion investment to build up SoftLayer, the $1 billion investment in Watson with the IBM Watson Group, and the $1 billion investment in the Bluemix platform-as-a-service, among others. Rometty also cited recent deals struck with Apple and SAP in the mobile and cloud spaces, respectively.

      Yet, revenues from IBM’s typically strong sectors saw a downturn in the quarter. Revenues from the software segment were $5.7 billion, down 2 percent from the third-quarter of 2013. And revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Workforce Solutions and Rational products, were $3.7 billion, down 1 percent.

      IBM’s Financial Struggles Continue in Q3 2014

      In addition, revenues from the company’s growth markets were down 6 percent and revenues in the BRIC countries —Brazil, Russia, India and China—were down 7 percent. IBM’s Global Services segment revenues decreased 3 percent to $13.7 billion. The Global Technology Services segment revenues decreased 3 percent to $9.2 billion, and the Global Business Services segment revenues were down 2 percent to $4.5 billion.

      On the hardware front, which has been struggling over the past quarters, revenues from continuing operations from the Systems and Technology segment totaled $2.4 billion for the quarter, down 15 percent from the third quarter of 2013. Revenues from Power Systems were down 12 percent from the 2013 period. Revenues from System x were down 10 percent. And revenues from System z mainframe server products decreased 35 percent, compared with the year-ago period.

      Andrew Smith, an analyst with Technology Business Research, said he had two key takeaways from IBM’s earnings report. One is that Rometty retracted the $20 operating earnings per share by the 2015 target, “signaling that market changes are forcing IBM to reprioritize spending and investments in ways that they were not originally planning to,” he said. Secondly, “this underscores the fact that changes in the enterprise IT market are happening even faster than the best and brightest in the industry anticipated, and IBM’s results are another indication of how long and complex the road to customer satisfaction is in today’s enterprise environment,” Smith said.

      “IBM’s results were obviously disappointing, but I’m not overly concerned about the company’s longer-term strategy or prospects,” said Charles King, principal analyst at Pund-IT. “Like many other vendors, IBM is caught in an unenviable position where its customers’ fears about the global economy and how it will affect their business performance are directly impacting IT purchasing decisions. We saw a similar sort of reticence in 2008 as the world was heading into the Great Recession. Things aren’t anywhere near as dire this time around but significant, understandable concerns about business demand and growth prospects remain.”

      King also noted that while IBM’s performance needs to improve, there were some bright spots, including growth in demand for its SoftLayer-based cloud services. “The fact that the company is making that organization a separate business unit signals a larger optimism about and faith in the future of its cloud strategy,” he said. “It’s also worth pointing out that even though it failed to meet earnings projections, IBM remains far more profitable and pays significantly higher dividends than any of its competitors. As a result, I expect analysts and speculators are far more concerned today than the company’s shareholders.”

      Rob Enderle, a longtime IBM watcher and founder of the Enderle Group, agreed that IBM is showing positive signs with its turnaround strategy.

      “I actually think they are making good progress with SoftLayer and Watson, showcasing where they are going,” Enderle said. “The x86 pivot was ugly, but that is because the negotiations and approvals dragged on so long. … In contrast to the public companies, those that have gone private [Dell/BMC] seem to be doing far better faster, suggesting this ‘going private’ path should be considered more widely. Both HP and IBM are clearly struggling to accomplish similar things while public and the ‘activist investors’ have become a nightmare and, personally, I think it is well past time the SEC stepped in and stopped these ‘investor/blackmailers’ from destroying these firms. They have an unfair advantage of leverage over other investors and they are forcing things like debt-financed stock buybacks, which aren’t in the long-term best interest of the firms.”

      Darryl K. Taft
      Darryl K. Taft
      Darryl K. Taft covers the development tools and developer-related issues beat from his office in Baltimore. He has more than 10 years of experience in the business and is always looking for the next scoop. Taft is a member of the Association for Computing Machinery (ACM) and was named 'one of the most active middleware reporters in the world' by The Middleware Co. He also has his own card in the 'Who's Who in Enterprise Java' deck.

      Get the Free Newsletter!

      Subscribe to Daily Tech Insider for top news, trends & analysis

      Get the Free Newsletter!

      Subscribe to Daily Tech Insider for top news, trends & analysis

      MOST POPULAR ARTICLES

      Artificial Intelligence

      9 Best AI 3D Generators You Need...

      Sam Rinko - June 25, 2024 0
      AI 3D Generators are powerful tools for many different industries. Discover the best AI 3D Generators, and learn which is best for your specific use case.
      Read more
      Cloud

      RingCentral Expands Its Collaboration Platform

      Zeus Kerravala - November 22, 2023 0
      RingCentral adds AI-enabled contact center and hybrid event products to its suite of collaboration services.
      Read more
      Artificial Intelligence

      8 Best AI Data Analytics Software &...

      Aminu Abdullahi - January 18, 2024 0
      Learn the top AI data analytics software to use. Compare AI data analytics solutions & features to make the best choice for your business.
      Read more
      Latest News

      Zeus Kerravala on Networking: Multicloud, 5G, and...

      James Maguire - December 16, 2022 0
      I spoke with Zeus Kerravala, industry analyst at ZK Research, about the rapid changes in enterprise networking, as tech advances and digital transformation prompt...
      Read more
      Video

      Datadog President Amit Agarwal on Trends in...

      James Maguire - November 11, 2022 0
      I spoke with Amit Agarwal, President of Datadog, about infrastructure observability, from current trends to key challenges to the future of this rapidly growing...
      Read more
      Logo

      eWeek has the latest technology news and analysis, buying guides, and product reviews for IT professionals and technology buyers. The site’s focus is on innovative solutions and covering in-depth technical content. eWeek stays on the cutting edge of technology news and IT trends through interviews and expert analysis. Gain insight from top innovators and thought leaders in the fields of IT, business, enterprise software, startups, and more.

      Facebook
      Linkedin
      RSS
      Twitter
      Youtube

      Advertisers

      Advertise with TechnologyAdvice on eWeek and our other IT-focused platforms.

      Advertise with Us

      Menu

      • About eWeek
      • Subscribe to our Newsletter
      • Latest News

      Our Brands

      • Privacy Policy
      • Terms
      • About
      • Contact
      • Advertise
      • Sitemap
      • California – Do Not Sell My Information

      Property of TechnologyAdvice.
      © 2024 TechnologyAdvice. All Rights Reserved

      Advertiser Disclosure: Some of the products that appear on this site are from companies from which TechnologyAdvice receives compensation. This compensation may impact how and where products appear on this site including, for example, the order in which they appear. TechnologyAdvice does not include all companies or all types of products available in the marketplace.