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

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4/19/2016
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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.

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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.

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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 has spent a career covering the intersection of business and technology at titles including IDG's Infoworld, Ziff Davis Enterprise's eWeek and Channel Insider, and Penton Technology's MSPmentor. She's passionate about the practical use of business intelligence, ... View Full Bio

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Broadway0474
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Broadway0474,
User Rank: Ninja
4/29/2016 | 10:32:37 PM
Re: Questionable headline
Joe, good recommendation. I would recommend the same for anyone looking to personally engage on social media for professional reasons. I would also argue that you cannot be a busy professional and manage more than 1-2 social media platforms actively ... unless you're paying someone to do it for you. And I would recommend that too.
Joe Stanganelli
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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
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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.
Broadway0474
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Broadway0474,
User Rank: Ninja
4/27/2016 | 7:23:00 PM
Re: Questionable headline
Joe, funny enough I think I was a LinkedIn user before Facebook. I'm kinda negligent on both at the moment and even trailing on my Twitter usage. It always leads me to wonder how much social media is really for those looking for stuff to do.
Joe Stanganelli
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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?
Broadway0474
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Broadway0474,
User Rank: Ninja
4/26/2016 | 6:03:57 PM
Re: Questionable headline
The idea of networking for a job is obviously not new, nor is the idea of building ones reputation (brand). And not every industry or profession requires networking through social media. But for those that do, LinkedIn and Twitter and for some Facebook are professional necessities.
Broadway0474
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50%
Broadway0474,
User Rank: Ninja
4/26/2016 | 6:03:53 PM
Re: Questionable headline
The idea of networking for a job is obviously not new, nor is the idea of building ones reputation (brand). And not every industry or profession requires networking through social media. But for those that do, LinkedIn and Twitter and for some Facebook are professional necessities.
TerryB
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TerryB,
User Rank: Ninja
4/26/2016 | 12:48:22 PM
Re: Questionable headline
@Joe, I hear that statement a lot and not really sure how to take it. HP, for as long as I can remember, has always been about hardware. They sold midrange UNIX servers back in the day to compete with IBM and have been in the Windows server/desktop market since the beginning. Also types of network equipment.

But their printers were always the most successful. I'd still be willing to bet HP printers have most market share, just that people don't use as many and they are much cheaper. I'm not sure continuing in that space was a mistake anymore than MS continuing to make and sell Windows. Should they have been inventing a smartphone and tablet before Apple did instead of resting on their laurels? Definitely. But a LOT of companies made that mistake.

But we are a "partner" of HP to buy computer hardware now. They have not been very impressive in service, that was source of my comment on them. It takes weeks sometimes to get a desktop or laptop shipped to us. Then they come with al this HP "junkware" installed on top of Windows. Then I may or may not get the invoice. Just a goofy company to deal with compared to IBM.
TerryB
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TerryB,
User Rank: Ninja
4/26/2016 | 12:29:17 PM
Re: Questionable headline
I'm probably picking on social media more than it deserves but didn't digital advertising exist back in days of static HTML pages? I'd probably give credit to Google (who I don't consider social media but Search) to exploding that business.

What are other examples of businesses who have been enabled by the Facebook and Twitter's of the world?

I had to chuckle at your LinkedIn reference. I'm so old school I've got no use for that either. :-)  I'm not sure when this idea of networking to get a job/make hire became so big? Sounds like I'd be in big trouble today.
Broadway0474
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50%
Broadway0474,
User Rank: Ninja
4/26/2016 | 8:07:14 AM
Re: Questionable headline
Joe, you beat me to the punch on the rebuttal. Whole new lines of professions have been created because of Facebook and its ilk, and they are not going away. Sure, you can argue whether brands ought to be communicating with consumers as if they are social creatures, but that's just Facebook. Without Facebook would there be LinkedIn and its critical importance to business recruiting and thought leadership development?
Page 1 / 3   >   >>
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