‘Much Remains To Be Done’ In IBM Transformation, Says Rometty

IBM CEO Gini Rometty has told investors that 2014 was a “critical year of transformation” and that much work is yet to be done in transforming IBM.

Writing to investors in the annual chairman’s letter, Rometty admitted that that transformation of IBM has reflected in 2014’s financial results, but that the transformation is necessary to “pursue a model of high-value innovation, rather than commodity technology, products and services”.

Sales decline

In January of this this, IBM saw its eleventh consecutive quarter of sales decline. Its revenue fell almost 12 percent from the same time last year to £15.9bn in Q4. Annual revenue declined from almost £71bn in 2011 to £61bn in 2014. Net income was also down 11 percent to £3.6bn in the same quarter.

Rometty said: “Our choice is clear: We pursue a model of high-value innovation, rather than commodity technology, products and services. Our commitment to this model compels us to reinvent businesses continually; grow new ones organically and through acquisitions; and occasionally divest businesses that do not fit our profile.

“You see all of this reflected in our 2014 results,” she said. “A dynamic shift of our portfolio underneath our $92.8 billion in revenue, $21 billion in operating pre-tax income and operating earnings per share of $16.53 from continuing operations.”

Rometty then went on to point out IBM’s investments in 2014 that should spark a turnaround, namely Bluemix, Watson, and its $1.2bn expansion for global SoftLayer data centres.

“These investments will contribute to the strong growth we are seeing in our strategic imperatives, which deliver high value and now represent a significant part of IBM. Together, cloud, analytics, mobile, social and security generated $25 billion of revenue in 2014, growing by 16 percent. Five years ago, these businesses represented just 13 percent of our revenue. Today, that has risen to 27 percent of IBM’s revenue,” said Rometty.

In January, 451 analyst William Fellows told TechWeekEurope that IBM needs to “double down on SoftLayer and the services opportunity”.

“IBM is a top ten IaaS player in terms of revenue now,” says Fellows. “But only. The problem is, it’s losing wallet share despite its IT spending growth – ie, it’s being disrupted.”

IBM’s cloud leader for the UK, Doug Clark, said that IBM’s alliances are what can really boost the company now. “One of the things we do, we have been working on a lot over the past few years is strategic alliances we’ve built to help us bridge to this massive growth that we’re expecting,” said Clark.

This sentiment was reiterated by Rometty, who concluded that strategic partnerships are “a significant new element of our growth strategy”.

Rometty wrote: “We will add to and scale partnerships with companies like Apple, Twitter, SAP, Tencent and now, SoftBank. Also, the IBM Watson Ecosystem is rapidly expanding, with 4,000 companies in the pipeline.

“Together, these actions will make IBM an even higher-value business.”

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