IBM ‘disappointed’ with Q3 performance as cloud dreams turn stormy

21 Oct 2014

IBM CEO Ginni Rometty expressed disappointment as IBM reported a 4pc drop in sales to US$22.4bn and a substantial fall in net income from US$4bn last year to only US$18m in the third quarter.

Shares in IBM fell 7.2pc in trading yesterday, wiping US$1bn from the value of the stake held by IBM’s largest shareholder Warren Buffet.

IBM also agreed to pay chipmaker Global Foundries US$1.5bn to take its unprofitable chip manufacturing business Microelectronics OEM off its hands.

Third quarter net income from operations was US$3.5bn, compared with US$4.1bn in the third quarter of 2013.

Rommitty took over as CEO in 2012 after the previous CEO Sam Palmisano completed an earlier overhaul of IBM’s operations, including reducing its dependency on hardware and growing its focus instead on software and services.

However, it appears that the pace of the march of cloud computing, mobile and social along with big data and analytics occurred faster than IBM was prepared to capitalise.

However, evidence of IBM’s efforts to embrace the new computing landscape can be seen in a massive enterprise mobility deal that Big Blue struck with Apple that will see IBM sell iPhones and iPads.

Apple last night reported profits of US$8.5bn on revenues of US$42.1bn as sales of its popular iPhone and Mac devices continue to grow.

An unprecedented change is occurring in tech

Rometty said that there was an unprecedented changed occurring in the tech industry and that IBM was sticking to its plans to transition to cloud, data, analytics, security, social and mobile.

“We are disappointed in our performance,” she said. “We saw a marked slowdown in September in client buying behavior, and our results also point to the unprecedented pace of change in our industry.

“While we did not produce the results we expected to achieve, we again performed well in our strategic growth areas – cloud, data and analytics, security, social and mobile – where we continue to shift our business.  We will accelerate this transformation.

“We are executing on a clear strategy that is moving IBM to higher value, and we’ve taken significant actions to exit nonstrategic elements of the business. This includes the announcement that we will divest semiconductor manufacturing to focus on research and development that will differentiate our systems.

“We will continue to make the investments and the changes necessary to manage our business for the long term. And we remain fully committed to returning significant value to shareholders through dividends and share repurchase.”

The results could send shockwaves through an industry dealing with what Rommity describes as “unprecedented change” where a cloud or software vendor could be changed with the click of a mouse or tap of a touchscreen and fast emerging cloud vendors like Amazon are all too ready to pounce.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years