Menu
IBM's Rometty defends bumpy financial ride as company shifts strategy

IBM's Rometty defends bumpy financial ride as company shifts strategy

In a call with investors, IBM CEO Ginni Rometty vigorously defended IBM's pursuit of emerging high-growth markets

IBM CEO Ginni Rometty is moving quickly to quell concerns about the company's sinking earnings and defend a deal to pay more than a billion dollars to hand off its money-losing microelectronics business to GlobalFoundries.

In a conference call held Monday after IBM issued its earnings report, Rometty firmly asserted that the dip in earnings as well as the chip-business deal were necessary for the company to make bold moves to stay current in a tumultuous time of change in the IT industry.

"Make no mistakes, our results in this quarter were disappointing and we don't want to minimize that," she said. "But we have been very clear that this industry is shifting and we have been executing a strategy that moves this company to the future. We are reinventing and managing this company for the long term ... I absolutely convinced we are over the right targets."

IBM announced Monday that it was paying Global Foundries to take over its semiconductor manufacturing business.

Although it might seem shocking IBM would pay to get rid of a business unit that brings in US$7 billion in revenue, that money was "empty calories" for IBM, Rometty said. It produced little in the way of profit and, in fiscal 2013, actually lost approximately $700 million.

The move to hand off semiconductor manufacturing was more about strategy than specific yearly losses, she said. "When I think about revenue, I think about moving us first and foremost to higher value," Rometty said.

The semiconductor manufacturing business is one that requires large amount of capital, and will require even more in the future as wafer production grows more expensive and intricate. "That is someone else's business," Rometty said. The company has "no apologies for divesting anything that is not high value, not core. We need to deploy that capital to other things," Rometty said.

IBM will still continue to invest heavily in semiconductors -- it has pledged $3 billion in research in this area -- but will license out the technologies rather than build them in house.

Beyond the financial confusion stirred up by the GlobalFoundries deal, the third quarter financial results from the IBM, ending in September, showed the company struggling to increase its business overall.

Third-quarter net income for the company came to $3.5 billion, 17 percent lower than the $4.1 billion for the same quarter a year prior. Revenue slumped year-on-year as well, down 4 percent to $22.4 billion. Rometty attributed these numbers to a temporary but significant slowdown in client buying behavior.

The IT industry is going through "unprecedented change," with the enterprise adoption of cloud and mobile technologies, social media, data and analysis, and a greater emphasis on security, Rometty said.

These are the potential areas of high-value growth (and high profit margin) for the company.

"These will reorder the industry and therefore we have to reinvent ourselves ... around these things," Rometty said.

Rometty pointed out the many initiatives IBM has thrown itself into to pursue the emerging markets.

This year alone the company started a business practice around its Watson cognitive computing service, is plowing $1.2 billion into its cloud data centers and another $1 billion into ramping up Bluemix cloud software platform.

It has also set off on a new wave of partnerships with the likes of Apple and SAP, which point the way to IBM "being the go-to for entering the enterprise business," Rometty said.

One analyst on the call wondered if new businesses and startups are becoming more accustomed to use other, newer services for these duties, rather than trusting IBM. Rometty disagreed with this assessment, pointing out that there are many startups using IBM's Softlayer infrastructure services and that the Watson platform has thus far attracted the attention of over 3,000 partners.

More importantly, she noted, IBM's overall goal is to be the business that enterprises go to in order to incorporate these new technologies into their operations. While there are many innovative startups, enterprises still need a way to integrate new technologies into their overall infrastructure, a role IBM is uniquely suited to help with.

When approaching the cloud, enterprises are now moving into hybrid operations, in which some jobs, especially those that need to be stood up quickly, are run in the cloud, while systems-of-record will continue to be run in-house.

"We are seeing that play out. That is what people are looking for," Rometty said. In this scenario, IBM will work to be a "navigator," to help enterprises build hybrid systems.

The results are starting to pay off, Rometty assured the analysts, and touted some metrics in this regard.

Big data and analytics brought in $16 billion in revenue fiscal 2013, and that business is growing at 8 percent this year to date. Cloud technology has grown 50 percent year to date. Cloud services brought in $4.4 billion in 2013 and have shown a 50 percent growth rate this year to date. Social, mobile and security products and services are also showing significant growth rates, she said.

"They are within themselves very large businesses with high growth rates," Rometty said.

(IDG News Service reporter Mikael Ricknäs contributed to this report.

Joab Jackson covers enterprise software and general technology breaking news for The IDG News Service. Follow Joab on Twitter at @Joab_Jackson. Joab's e-mail address is Joab_Jackson@idg.com

Follow Us

Join the New Zealand Reseller News newsletter!

Error: Please check your email address.

Tags business issuesIBMfinancial results

Featured

Slideshows

Educating from the epicentre - Why distributors are the pulse checkers of the channel

Educating from the epicentre - Why distributors are the pulse checkers of the channel

​As the channel changes and industry voices deepen, the need for clarity and insight heightens. Market misconceptions talk of an “under pressure” distribution space, with competitors in that fateful “race for relevance” across New Zealand. Amidst the cliched assumptions however, distribution is once again showing its strength, as a force to be listened to, rather than questioned. Traditionally, the role was born out of a need for vendors and resellers to find one another, acting as a bridge between the testing lab and the marketplace. Yet despite new technologies and business approaches shaking the channel to its very core, distributors remain tied to the epicentre - providing the voice of reason amidst a seismic industry shift. In looking across both sides of the vendor and partner fences, the middle concept of the three-tier chain remains centrally placed to understand the metrics of two differing worlds, as the continual pulse checkers of the local channel. This exclusive Reseller News Roundtable, in association with Dicker Data and rhipe, examined the pivotal role of distribution in understanding the health of the channel, educating from the epicentre as the market transforms at a rapid rate.

Educating from the epicentre - Why distributors are the pulse checkers of the channel
Kiwi channel reunites as After Hours kicks off 2017

Kiwi channel reunites as After Hours kicks off 2017

After Hours made a welcome return to the channel social calendar last night, with a bumper crowd of distributors, vendors and resellers descending on The Jefferson in Auckland to kickstart 2017. Photos by Maria Stefina.

Kiwi channel reunites as After Hours kicks off 2017
Arrow exclusively introduces Tenable Network Security to A/NZ channel

Arrow exclusively introduces Tenable Network Security to A/NZ channel

Arrow Electronics introduced Tenable Network Security to local resellers in Sydney last week, officially launching the distributor's latest security partnership across Australia and New Zealand. Representing the first direct distribution agreement locally for Tenable specifically, the deal sees Arrow deliver security solutions directly to mid-market and enterprise channel partners on both sides of the Tasman.

Arrow exclusively introduces Tenable Network Security to A/NZ channel
Show Comments