IBM Admits Need to Reinvent Self as Tech Giant Reports 10th Consecutive Quarter of Weak Sales
Vittorio Hernandez | | Oct 21, 2014 03:01 AM EDT |
(Photo : reuters.com)
IBM Chief Executive Virginia Rometty admitted during the release of the tech giant's quarterly report on Monday that she was disappointed with the results of the company's performance for the months of July through September.
International Business Machines Corp. (IBM) reported a 4 percent drop in sales and confirmed speculations that it agreed to sell its losing chip-making business for $1.5 billion to GlobalFoundries. The downturn led the Armonk, New York-based firm to abandon its $20 a share earnings forecast for 2015, which it had kept for five years under two chief executives.
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"We've got to reinvent ourselves like we've done in prior generations," The Wall Street Journal quoted Rometty, who insisted its focus on services is the correct one.
Share prices of IBM, which successfully shifted to software from hardware, plummeted to a three-year intraday low on Monday after it released the quarterly data - its 10th consecutive quarter of weak or declining sales. But it eventually recovered to $169.19.
Rometty, in a conference call on Tuesday, said its latest quarterly report showed that IBM must do more and adapt to changes at a faster pace. FBR Capital Markets analyst Daniel Ives agreed with Rometty's realization.
He warned, quoted by The Sydney Morning Herald, "IBM needs to find success and growth in the cloud through organic and acquisitive means...Otherwise there could be some darker days ahead for the tech giant and its investors."
IBM's decision to dispose its chip-making business is a step in the right direction, said Rometty, who explained in the conference call, "These divestitures do give us an opportunity to go ahead and simplify the business and remove layers."
She added, "Make no mistake, that is important because the strategy is correct and now it is our speed of execution that needs to continue to improve."
IBM Chief Financial Officer Martin Schroeter told The Wall Street Journal that the company would continue to evolve its services as it adjusts to clients' demand for software services.
While Apple, which reported on the same day record-breaking sales and earnings, and other tech giants have shifted to cloud computing, IBM suffers from an industry perception that it is "an old technology company."
Thus, even if the firm has been rapidly moving away from hardware and manufacturing toward cloud computing and software, other IT companies such as Questor Pharmaceuticals admitted it has not used any IBM technology for quite a while, said Behrooz Najafi vice president of IT at Questor.
To further push its cloud services offering, IBM bought SoftLayer in 2013 for $2 billion, while it plans to spend another $1.2 billion on setting up additional cloud data centers. But some analysts believe that IBM's efforts are a tad too late.
However, Erik Gordon, professor at the Ross School of Business at the University of Michigan, thinks that IBM could still adapt to the times as it did in 1993 when it moved away from the hardware business.
Citing the book written by former IBM CEO Louis Gerstner Jr., titled "Who Says Elephants Can't Dance?" the professor quipped, "It's time for the elephant to learn a new dance."
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