IBM reported its fourteenth straight quarter of declining sales on Monday, but don’t expect the company to change its strategy.
Chief Financial Officer Martin Schroeter told skeptical analysts that his company is focused on growing its cloud computing, data analytics, security, and mobile businesses. The “aggressive investments” required today would pay off in the future, he promised.
In September, for example, IBM acquired cloud startups StrongLoop and Meteorix for undisclosed amounts. Additionally, he pitched IBM’s Jeopardy-winning artificial intelligence technology, Watson, as crucial to the company’s “significant transformation.”
Over the past few years, under the leadership of CEO Ginni Rometty, IBM has been investing in technology that the company believes will better serve business customers, whose technology buying habits are changing. With the rise of cloud computing, corporations are increasingly buying computing resources and software on demand instead of buying their own data center gear and software licenses.
“We are investing heavily into Watson, we are investing heavily into Watson Health,” said Schroeter, who acknowledged that the spending has yet to pay off. “But they are the right things to do because those have tremendous futures to them.”
But investors are growing impatient. Analysts peppered executives with questions about when the company would finally show growth, or, at least stop its decline — to which IBM gave no hard timeline.
IBM said that third quarter revenue fell 14% to $19.28 billion in third quarter revenue, which was below analyst expectations of $19.62 billion. Its adjusted profit was $3.34 a share compared to the expected $3.30 per share from analysts.
IBM’s shares (IBM) fell nearly 5% in after-hours trading based on the weak results and a lower guidance for the fiscal year.
Although IBM executives are bullish about the newer businesses, those units are not offsetting declines in the company’s traditional businesses like selling software licenses and storage hardware. Sales in all of IBM’s business units—including its business consulting services, hardware, and software—declined in the third quarter.
The bright side, according to Schroeter, was the 17% year-to-year growth in what IBM calls its strategic imperatives that include cloud computing, data analytics, and mobile. “Where we have been investing, we have been driving tremendous growth,” Schroeter said.
IBM gave no details about how much money those “strategic imperatives” have brought in other than to say its cloud business brought in $9.4 billion over the past 12 months. Furthermore, the company admitted to a few unspecified hiccups in the transition. The company also said there will be layoffs as part of its continued transition, but it didn’t give any specific numbers.
During the earnings call, Schroeter said that IBM’s consulting group is still transitioning to accommodate IBM’s push into its new “strategic imperatives.” The company’s consulting unit, called the global business services unit, took in $4.2 billion in the third quarter, a 13% decline in revenue on a year to-year basis from the previous year.
“That transformation, which I would characterize as well under way, is going well,” Schroeter. “It’s just not going the speed we’d like it to go.”
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