IBM's Strategy Fails To Boost Revenue, Impress Investors - InformationWeek

InformationWeek is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them.Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

IoT
IoT
Data Management // Big Data Analytics
News
4/19/2016
01:06 PM
Connect Directly
Twitter
RSS
E-Mail
50%
50%

IBM's Strategy Fails To Boost Revenue, Impress Investors

IBM embarked on its first quarter breaking out "strategic imperatives," as part of an effort to showcase businesses such as cognitive computing that the company believes will shape its future. Yet, overall IBM's revenue experienced a decline compared to last year's first quarter.

10 Top Tech Companies Poised For Massive Layoffs
10 Top Tech Companies Poised For Massive Layoffs
(Click image for larger view and slideshow.)

IBM revenues dropped in the first quarter of 2016 to $18.7 billion, down from $19.6 billion during the same period a year ago. The figures make this the 16th straight quarter of declining revenue. The news came as part of the tech giant's first-quarter revenue announcement.

The announcement marked the first time IBM broke out its financial performance by new segments to highlight what the company is calling "strategic imperatives" -- high-growth new businesses that executives say are the future of the company.

IBM reported earnings per share of $2.09 for the first quarter, compared with $2.35 for the same period last year.

Bernstein Research senior analyst Toni Sacconaghi said that IBM's guidance for earnings per share in the second quarter implied the figure would be about $2.85 -- which is about 60 cents below Wall Street analyst estimates, even though the company is maintaining its guidance for the full year.

Investors on Wall Street expressed their disappointment in the revenue number and outlook with a 4% lower opening price for IBM shares on Tuesday, the morning after the first quarter earnings announcement. But some observers saw the report as a positive for the company's longer-term goals. Krista Macomber and Stephanie Long, senior analysts with Technology Business Research Inc., say they believe that the Q1 results show IBM's commitment to a bigger transformation.

(Image: gong hangxu/iStockphoto)

(Image: gong hangxu/iStockphoto)

"IBM's restructured business and financial reporting structure demonstrates commitment and confidence as it continues its multi-year journey to transforming from its legacy hardware- and outsourcing-led roots, built over more than 100 years, and into an enabler of modern, digital transformation for customers," the analysts said in a statement sent to InformationWeek after earnings were released.

Learn to integrate the cloud into legacy systems and new initiatives. Attend the Cloud Connect Track at Interop Las Vegas, May 2-6. Register now!

IBM SVP and CFO Martin Schroeter told analysts during the earnings call that over the last 12 months, IBM's strategic imperatives delivered $30 billion in revenue, representing 37% of total revenue. He also commented on recent layoffs.

"This quarter we took significant actions to transform our workforce and shift our skills base to new areas and to improve our structure primarily outside the US," he said, and that resulted in a pre-tax charge of $1.5 billion. Schroeter emphasized that the layoffs were not a capacity reduction for the company; they were about reinvestment in new areas.

IBM's Segment Financials

What does the financial breakout look like for IBM's new segments?

Cognitive Solutions delivered nearly $3.98 billion in revenue in the first quarter of 2016, compared to $4.05 billion in the same period a year ago. This segment includes solutions software such as analytics and security. It includes what IBM says are new opportunity areas such as Watson Health and Watson IoT, "opening up revenue and profit pools beyond traditional IT," Schroeter said. "Because we're building new businesses in new markets, they'll ramp over time."

Global Business Services delivered $4.13 billion in revenue for the quarter, down from $4.32 billion in last year's first quarter. Schroeter told analysts that this segment is unchanged, but that GBS has been shifting its business toward solution areas such as cognitive computing and creating new consulting practices around these areas.

Technology Services & Cloud Platforms delivered $8.42 billion in revenue in the first quarter, down from $8.55 billion in last year's first quarter. This segment includes IBM's Global Technology Services business and its cloud infrastructure and platform capabilities. Products in this segment include WebSphere.

Systems delivered $1.67 billion in revenue, down from $2.14 billion in the same quarter last year. This segment includes the company's hardware offerings, such as z Systems, and the software that goes with these systems.

Global Financing delivered $410 million in revenue for the first quarter of 2016, compared to $461 million during the same period last year. This segment remains essentially unchanged. It is the client and commercial financing and used equipment sales business.

Jessica Davis is a Senior Editor at InformationWeek. She covers enterprise IT leadership, careers, artificial intelligence, data and analytics, and enterprise software. She has spent a career covering the intersection of business and technology. Follow her on twitter: ... View Full Bio

We welcome your comments on this topic on our social media channels, or [contact us directly] with questions about the site.
Comment  | 
Print  | 
More Insights
Comments
Newest First  |  Oldest First  |  Threaded View
Joe Stanganelli
50%
50%
Joe Stanganelli,
User Rank: Author
4/29/2016 | 8:58:27 AM
Re: Questionable headline
@Broadway: For those who use social media professionally, I always advise them to get on a bunch of different platforms, but pick one or two to be really active on -- and leave the rest to simply have a profile, once in a blue moon engage, and use it to redirect from your profile there to your profiles on your more active social networking accounts.  It helps you be more ubiquitous while giving your SEO a major organic boost.
Joe Stanganelli
50%
50%
Joe Stanganelli,
User Rank: Author
4/28/2016 | 11:00:28 PM
Re: Questionable headline
Here's the funny thing.  I remember a couple of years ago when it looked like my ink cartridge had run out of ink.  I went to the local office supply store to buy a new cartridge -- only to discover that it would be cheaper just to buy a whole new printer.

Nonplussed, I left without purchasing anything and I went to Kinko's (now FedEx Office) with my USB Flash drive.  When the guy told me how much it would cost to print my document, I realized that I could just rely on Kinko's/etc. for all of my printing needs for at least the next 10-20 years -- if not the rest of my life -- and it would still be cheaper than buying a new printer.
Joe Stanganelli
50%
50%
Joe Stanganelli,
User Rank: Author
4/27/2016 | 1:23:51 AM
Re: Questionable headline
@Broadway: Funnily enough, I joined LinkedIn before Facebook.

In any case, would either exist with MySpace?  Or LiveJournal?  Or Usenet and dial-up BBS's???

Now I'm really dating myself, huh?
Joe Stanganelli
50%
50%
Joe Stanganelli,
User Rank: Author
4/26/2016 | 6:48:44 AM
Re: Questionable headline
@TerryB:

> "not exactly sure how Facebook has helped anyone build a career, or ever will."

I think digital marketers everywhere might disagree.

For my own part, though, on the personal side, connecting and reconnecting with people through FB has helped me with career opportunities and new clients/business.  Of course, this is just plain old networking -- but networking that would have been onerous and impractical (and likely ineffective, to boot) to do years ago pre-Facebook.
Joe Stanganelli
50%
50%
Joe Stanganelli,
User Rank: Author
4/26/2016 | 6:46:10 AM
Re: Questionable headline
@TerryB: To be fair about HP, tech issues have contributed to what's been going on there.  The company made serious stumbles by relying so heavily on their printer division for so long.
Joe Stanganelli
50%
50%
Joe Stanganelli,
User Rank: Author
4/23/2016 | 9:14:53 AM
Re: Questionable headline
@TerryB: John Chambers might disagree.  bizjournals.com/sanjose/news/2012/12/07/john-chambers-2-or-3-of-the-largest.html

Of course, his prediction that 2/3 of the largest companies would cease to exist in five years was made in 2017, and he's still beating that five-year drum.  At some point one has to raise the second eyebrow.
Joe Stanganelli
50%
50%
Joe Stanganelli,
User Rank: Author
4/21/2016 | 8:01:26 PM
Re: Questionable headline
@jries: It seems to work in the startup world.  ;)
Joe Stanganelli
50%
50%
Joe Stanganelli,
User Rank: Author
4/20/2016 | 7:49:06 AM
Publicly traded companies
This is the problem with being publicly traded.  You could do super well, and then when you do a little less well and make less than 5% less you get second-guessed and criticized.

4 years straight of declining revenues is a concern, sure, but I'd hope investors can see the forest for the trees.

InformationWeek Is Getting an Upgrade!

Find out more about our plans to improve the look, functionality, and performance of the InformationWeek site in the coming months.

News
Remote Work Tops SF, NYC for Most High-Paying Job Openings
Jessica Davis, Senior Editor, Enterprise Apps,  7/20/2021
Slideshows
Blockchain Gets Real Across Industries
Lisa Morgan, Freelance Writer,  7/22/2021
Commentary
Seeking a Competitive Edge vs. Chasing Savings in the Cloud
Joao-Pierre S. Ruth, Senior Writer,  7/19/2021
White Papers
Register for InformationWeek Newsletters
Video
Current Issue
Monitoring Critical Cloud Workloads Report
In this report, our experts will discuss how to advance your ability to monitor critical workloads as they move about the various cloud platforms in your company.
Slideshows
Flash Poll