Eleven quarters of missed revenue targets and its largest bout of job cuts sees IBM in troubled water as it struggles to adapt to the cloud strategies that transformative CIOs are adopting. IBM is not alone, its fellow trail-blazers in enterprise IT are also finding the new cloud economy a difficult place to be.
CIOs are directly affected by the business trajectory of his or her suppliers, and responsible product investment must take due account of the future viability of the product as well as the company which sells it.
That's why it's important to analyse the big US vendors in particular IBM, HP, Oracle and Microsoft. Each is currently engaged in a significant change of direction. The success of each venture, as well as how it will affect the product portfolio of them are of legitimate interest to those of us who might be investing considerable corporate funds and company tech resources in them.
Although a relatively new IBM CEO, Ginni Rometti, (top image) has been in post since the start of 2012, it was only in October last year that continuing poor Q3 results led to a significant drop in stock price. At the end of January IBM announced its subsequent fourth quarter results to an expectant audience of analyst and industry watchers. That expectation was already low; and IBM duly delivered slightly reduced profits and earnings per share.
But although on the surface the results didn't look any better than three months earlier, the stock price has held reasonably steady since then. Why? In October the chip fabrication business divestment had been factored in. There was also an allocation for reorganisation which could be interpreted as anything from the layoff of up to 10,000 people associated with defunct, divested and streamlined parts of the business right through to, as Silicon Valley writer Robert Cringeley in Forbes suggested, a 26% reduction in IBM's workforce - though it's not clear if Cringeley's figure relates to the 80,000 US or 400,000 global IBM workforce.
So the autumn statement was the one where the biggest hit appears to have been taken, with some $1.5 billion losses associated with getting rid of a non-profitable part of the business accounted for. IBM now seems to be set for weak but more stable progress, and that's what is being reflected in a more stable stock.
Like so many other companies IBM is chasing its highest margin areas of business. It's also trying to say goodbye to unprofitable hardware and chip manufacturing. But in doing so, does it also risk saying goodbye to known entities and betting on unknown ones with strong new competition? How successful can IBM be in cloud based services, up against a now well-established AWS operation, for example?
And if IBM's long reputation as technologist and innovator is to remain intact, then it's probably going to be with its Watson supercomputer - IBM's natural language business intelligence tool. It's an area which has received considerable investment from the company, although its launch as a cyber-competitor on a special episode of US TV quiz show 'Jeopardy' might not be considered the best way to present a new global corporate killer-product. In more recent news, the Watson developer cloud has added text, text to speech (and back), visual recognition and decision service capabilities to its portfolio in the hope of encouraging more user friendly services running on the platform.
For better or worse, it seems to be Watson, along with software as a service and cloud-based services which IBM intends to focus on as the high margin core businesses of the future. That, along with continued pressure to control costs will surely drive continued staff losses and change as new skills are required.
It's also believed that the company is poised to reorganise, creating new business units around these new areas of focus. Areas which might include things like services, systems, cloud, the Watson technologies, security, commerce and research. This predicted restructure will reveal the precise extent of layoffs and changes to job roles - there should be more news of that in coming weeks, as IBM talks to its investors.
For the IBM customer it's likely that core enterprise software and services will remain just that - core. Most of the major divestments IBM has wanted to make have already taken place and written off: X86 servers to Lenovo, chip manufacturing and so on. Any restructure about to hit will tidy the new edifice up and make sure these new areas of focus have their appropriate weight in the organisation.
So, sure, 2015 will be a flat year for IBM as adjustment continues and likely so for its comrades at HP, Oracle and Microsoft. And yes, some staff will be lost though redundancy, performance management, early retirement and attrition, though not a quarter of the global workforce. And though you might not actively choose to be an investor in IBM stock this year, the company will continue to be an important supplier for CIOs for the foreseeable future...