Q4 figures announced yesterday continued the theme of the consistent ebb in IBM’s fortunes, at least in revenue terms. Total revenue fell by 5% to $27.7bn for the quarter. Hardware sales again fell faster than analyst expectations, by 25%. Although net income was up by 6% to $6.2bn and adjusted eps was better than forecasts the shares fell further after a year of underperformance. Full year Revenue was down 5% to $99.8bn with adjusted eps up 7% to $16.28. The CFO has announced a $1bn restructuring charge as IBM aims to change the balance of the business.
There is a real Race for Change for IBM as it attempts to build a Cloud business (see IBM plans $1.2bn cloud investment and Salesforce and IBM: $4bn on cloud acquisitions in one day) and at the same time exit low margin businesses.
The Press is reporting on the possible sale of IBM’s low end server business to the Chinese giant Lenovo which acquired IBM’s PC business in 2004. Speculation first emerged early last year, but it seems talks fell apart. Selling the business is critical to IBM’s evolution away from low-growth and low margin revenue – but we’ll have to wait to see if the two firms can agree on a price.
IBM’s longevity in the industry is down to its ability to evolve with the times. Divesting of low growth businesses while investing heavily in growth areas such as social, mobile, analytics and cloud (SMAC) is the right thing to do. However, with technology the pace never slackens. With the converging trends the market is arguably more dynamic than it has ever been. IBM might have more cash and more courage than many, but it is certainly not exempt from the Race for Change.