In technology there's no such thing as too big too fail. There may be some serious cases of too big to succeed. IBM's third quarter results show how the company needs to run faster to keep up with changes in IT.
IBM CEO Ginny Rometty made a rare appearance on an earnings call to acknowledge disappointing third quarter results, emphasize the company is on the right strategic path and will move faster to transform. The big question is whether IBM is simply too big to navigate the various technology transitions underway.
Another concern: IBM's software and services businesses, which were expected to deliver as the company sheds its chip manufacturing and x86 server businesses and invests in cloud, are struggling.
IBM's third quarter results tell the tale. The company reported third quarter earnings of $3.5 billion, or $3.46 a share, on revenue of $22.4 billion, down 4 percent from a year ago. Non-GAAP earnings were $3.68 a share.
More importantly, IBM said it won't hit its target of $20 a share in operating earnings in 2015. That target has been in place for years and IBM has been reliable hitting its earning targets. Shares were down about 8 percent in early trading.
Rometty said IBM "saw a marked slowdown in September in client buying behavior," but that software and services didn't deliver the results the company expected. IBM's quarter had multiple moving parts. First, IBM said it will sell its chip manufacturing operations to GlobalFoundries for $1.5 billion and take a charge of $4.7 billion in the third quarter. Including the sale of its x86 server business to Lenovo, IBM has shed nearly $7 billion in revenue a year. That revenue, however, was unprofitable.
The mission for Rometty on the earnings call was to convince analysts that IBM was on the right path and could move quickly. The strategy for IBM looks sound, but it's unclear how fast Big Blue can move.
In technology there may be no such thing as too big to fail. In technology, companies can be too big to succeed---especially when there are fundamental shifts rewriting the IT rules. Enterprise technology companies are increasingly realizing that bigger isn't better and splitting up. Symantec and HP have announced breakup plans. So far, IBM has spent 2014 setting itself up for the future. To wit:
Our results this quarter were disappointing and we don't want to minimize that. This industry is shifting and we have been executing a strategy that moves this company to the future. I am absolutely convinced that we are focused on the right targets. You see it in the results and analytics, in cloud, mobile, social and security and we have taken bold moves to move this company to higher value. Our company fundamentally better positioned than it was a few years ago but as I have said we have more to do and we need to do it faster.
Speed was a recurring theme with Rometty, who added that culturally IBM has to simplify, engage and move quick. She said:
There are a couple of defining characteristics of the culture we are building here. One is speed. The second is the word "engagement." It's not enough to tell teams that you need to go faster. The point is you point them to where we're going to go. We've been very clear about the strategy and then it's also how you work and many people call that agile or DevOps. This kind of speed comes when try things, fail, correct them and keep moving forward. The second is this idea about engagement which really 'are you social and mobile within our own company?'
Rometty said IBM has been able to move faster in its 170 countries, but no matter how quickly the company revamps it's going to take time to turn the tanker around and deliver stronger results.