Advanced Computing in the Age of AI | Friday, March 29, 2024

IBM Treads Water While Scaling Cloud Efforts 

IBM continues to tread water as its overall cloud business grows but server hardware along with management and other software continues to decline.

IBM reported this week that its 2014 revenues declined to $92.8 billion, a 6 percent drop from the previous year. Meanwhile, its said annual net income fell 7 percent to $15.8 billion.

The only bright spots were revenue growth from its cloud, analytics, mobile, social and security operations. Together, said IBM CFO Martin Schroeter, these "strategic imperatives" accounted grew 16 percent in 2014, representing 27 percent of IBM's annual revenue, or about $25 billion.

Fourth quarter 2014 results also released this week we're equally lackluster as IBM continues its transition from a computing hardware giant to a cloud and services provider. Schroeter said fourth quarter revenues were down 12 percent to $24.1 billion. That total does not factor for the sale of its System x server business to Lenovo Group last year, nor does it include currency fluctuations that have been substantial.

IBM Chairman Ginni Rometty reasserted her strategy of repositioning IBM for the long term by moving away from commodity computer hardware to higher value markets like cloud, analytics and other software services.

The company said it would continue to invest in SoftLayer cloud infrastructure, Watson cognitive computing and analytics and its Bluemix platform-as-a-service partnership with Apple form last year. According to Schroeter, Bluemix "will allow our customers to move to a hybrid environment."

Added Schroeder: "As we get our cloud business to scale, and drive ongoing productivity improvements across our business, we see opportunity to continue to expand margin."

Still, quarterly hardware revenues generated by IBM's Systems and Technology segment were down 39 percent from the same period last year to $2.4 billion. Power Systems quarterly revenue declined 13 percent while System z mainframe server revenues plunged 26 percent. System Storage revenues also declined 8 percent year-on-year.

Annual hardware revenues were dinged by IBM's sales of its Microelectronics manufacturing unit to chip maker GlobalFoundries. The transaction is expected to cost IBM about $1.5 billion in 2014.

Schroeter noted that IBM has "repositioned Power, which is now a systems business, as well as an open chip processor and an IP opportunity through the OpenPower foundation."

Quarterly software revenues, including for key middleware products, also declined. IBM reported $7.6 million in software segment revenues during the fourth quarter, down 7 percent. Revenue from middleware products like Websphere, Tivoli and Rational, dropped 6 percent year-on-year to $5.4 billion.

Operating system revenues for the fourth quarter also dropped 19 percent from the prior-year quarter to $557 million, IBM said.

Despite assertions that it is turning the corner by investing in "higher value areas of enterprise IT," IBM's guidance for 2015 was less than encouraging. For example, Schroeter said the overall performance of the software unit is expected to be flat.

Meanwhile, IBM's shift to cloud computing has yet to scale, Schroeter acknowledged, adding that the level of investment required to bring it to scale would continue to erode margins in the coming year.

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