IBM seeks growth at 'rocky time'

New York TimesMay 12, 2014 

Spain Wireless Show

Virginia M. Rometty, chairwoman and CEO of IBM, speaks during a recent conference at the Mobile World Congress, the world’s largest mobile phone trade show, in Barcelona, Spain.

MANU FERNANDEZ — AP

This is a “rocky time” for IBM. That is the frank verdict from Virginia M. Rometty, the technology giant’s chief executive.

In recent years, revenue growth at IBM has been stubbornly elusive, and new technologies such as cloud computing have risen to threaten the company’s traditional hardware and software businesses. Those concerns have weighed on the company’s stock price, which has been stagnant since Rometty took over nearly 2 1/2 years ago.

But in an interview at IBM’s headquarters in Armonk, N.Y., Rometty said she and the company now had a clear vision for how to pursue another generation of growth.

The company, she says, has jettisoned less profitable business and made major commitments in new fields – such as technology to help customers find insights in today’s flood of digital data and cloud-style computing in which processing and software are delivered remotely over the Internet. Cloud computing, she insists, can be converted to an opportunity for IBM.

“We are transforming this company for the next decade,” she said, sounding a theme she plans to make Wednesday at the company’s yearly meeting with investment analysts. “That is not a one-year job, not when you’re a hundred billion-dollar company.”

IBM employs thousands of people at its Research Triangle Park campus.

The challenge facing Rometty, 56, is similar to those faced by previous IBM executives: figure out how to move to new business opportunities faster than the lucrative, older businesses erode.

Over the years, personal computing, the Internet and Indian services firms seemed like dire threats to the company. Each time, IBM adapted and invested, and emerged remade and reinvigorated.

“I feel very good about the direction and how we’ve crystallized it,” she said. She later added, “We are making progress, and we just need to keep moving with speed.”

Rometty characterized some problems, such as the falloff in its once-booming China business and the losses in its semiconductor unit, as relatively fleeting or fixable. Less than 15 percent of IBM’s revenue comes from hardware sales, but a down cycle in that business can hit hard, as it has in the past year.

One ingredient in the fix-it formula is shedding profit laggards. In January, IBM announced it was selling its division that makes industry-standard server computers to Lenovo of China for $2.3 billion.

Rometty’s message to IBM’s more than 400,000 employees is to embrace the future, and quickly, rather than resist it. The abrupt change in the company’s approach to cloud computing recently, analysts say, is an example.

IBM, analysts say, was slow to grasp the significance of cloud computing. That technology, they note, is the most pointed threat to IBM because it has the potential to displace big parts of the company’s business of selling hardware, software and services to corporations in their data centers.

For years, analysts say, the company’s SmartCloud offering was a fairly typical response of an incumbent supplier to a new technology. It was treated as an extension of IBM’s existing product line rather than something genuinely new.

But IBM signaled a new strategy, starting last June, when it bought a fast-growing cloud computing startup, SoftLayer Technologies, for $2 billion.

Since then, the “cloud DNA,” as one analyst put it, has taken root at IBM. In January, the company said it was investing $1.2 billion in cloud data centers, with a goal of having 40 cloud-dedicated centers in 15 countries by the end of 2014. In February, IBM announced it planned to invest $1 billion to build cloud software development tools and attract outside programmers, who want to make cloud applications for corporations. The initiative is called BlueMix.

IBM faces plenty of competitors in the cloud market, including Amazon, Microsoft, Google and Salesforce. And analysts say that as the largest supplier to corporate data center technology, IBM has the most to lose when companies move from traditional data-center computing to cloud rivals of IBM.

Amazon Web Services, analysts say, is the clear leader in so-called public cloud computing, in which services are delivered remotely from Amazon data centers. Public cloud computing, analysts say, is where the growth prospects and developer interest is greatest.

IBM, which reported that its cloud business grew 69 percent last year, to $4.4 billion, still gets most of its sales from “private” clouds, in which companies deliver cloud-style services to their employees from their own data centers.

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