IBM posted disappointing news for financial analysts and shareholders last week, with a decline in revenue of 4% to $23.72 billion while profit rose 6% from a year earlier to $4.04 billion. This precipitated a shakeup as CEO Gina Rometty reassigned James Bramante — who was until last week running the growth markets group, a role she placed him in when she became CEO the company a year ago, but which fell 9% from last year — and placed Bruno Di Leo back in charge of the group, which he started in 2008 and grew for several years. She also sounded the alarm bell:
“In the third-quarter we continued to expand operating margins and increased earnings per share, but fell short on revenue. Where we had identified high growth opportunities and pursued them aggressively — cloud, mobile, business analytics, and security — we continued to show strong growth. This underscores our strategy to continuously transform the company to high value,” said Ginni Rometty, IBM chairman, president and chief executive officer.
From my perspective, IBM is a bellwether for the tech sector as a whole, and there is no way to soft pedal the bad news in the tea leaves. They are confronted by the same problems as HP, but Rometty at least has not announced the tailing off of IBM’s remote work policies (see HP’s Meg Whitman follows Marissa Mayer’s lead: All Hands On Deck). Hardware sales are down 17%, especially in proprietary servers running IBM’s version of Unix, as well as a decline in IBM’s enormous services consulting business, which declined 4%.
The few bright spots in IBM’s P&L are those areas that reflect the rapid transition to the next generation of computing: mobile, cloud, analytics, security, and social workforce solutions.
Revenues from social workforce solutions increased 14%, an indication of the fact that social has gone mainstream, and companies are upping their investments.
Notably IBM’s WebSphere solutions business is flat — an indication that it may be reaching the point of decline, but the Rational Software — tools for developers — increased 12%.
IBM is like a mirror that shows what’s going on in the enterprise: companies are investing in mobile and cloud, deleveraging away from proprietary, ‘vanity’ servers in house, and investing in social tools, analytics, and security that meet the needs of a drastically changing workforce. It remains to see if IBM can deleverage its investments in the old technology paradigms and reorient its business lines and operations to get out ahead of this transition.
At the end of her first year, I’d say that Rometty has already opened her second envelope, and blamed the newest disastrous results on Bramante. Earlier in the year she opened the first envelope, and blamed the company’s troubles on the legacies of the past. The third and last note is all she has left, the one that reads “Prepare three envelopes.”