Bob's Gutsy Leadership Blog

IBM – No Sense of Urgency!

Six months ago, I wrote a blog that described how things might finally be falling into place for IBM to get itself out of its long-term downward spiral. In mid-2019, the company paid $34 billion for the thriving, open -source software company Red Hat – the largest software acquisition ever.  The hope was this would provide big momentum in its cloud & software business segment.  Also encouraging, a new CEO was appointed in early 2020.   

Unfortunately, my IBM enthusiasm was crushed with the recent release of its fourth quarter (Q4) 2020 financial results.   Sales declined to $20.37 billion from $21.78 billion the year before.  In fact, IBM revenues has fallen year-over-year in all but four of the past 34 quarters. Q4 earnings-per-share, adjusted for restructuring charges, was $2.07, down from $4.79 a year ago.  IBM’s earning decline for the year was -32%, and this marked the seventh straight year of declines.  

Even worse was the fact that IBM’s cloud and cognitive software segment saw a Q4 decline of -4.5% year over year to $6.8 billion.  That was well below the $7.3 billion Wall Street had expected for this business unit that represents IBM’s hope a much brighter future.  The key point here was made by a financial analyst who has followed the company for years: “The fact that core IBM cloud and software growth has deteriorated since the $34 billion Red Hat acquisition raises questions of whether the deal simply cannibalizes some of IBM’s ongoing software sales.”  

Another analyst really nailed it as to why this announcement of Q4-2020 results led to an immediate -10% decline in IBM’s stock: “I am a long-term investor and used to being patient as I am waiting for the company to achieve growth.  However, last quarter was simply too much even for a long-term optimist.  I am throwing in the towel on IBM.  The company is simply unable to execute well.”

This disappointment in the IBM cloud business is greatly magnified by the fact that IBM has been experiencing deteriorating fundamentals for years.   For perspective, over the past ten years, IBM annual revenue has been declining from a peak of $98 billion to $73 billion today; net income has fallen from $17 billion to $5.6 billion, and earnings per share has declined from $16.00 to the current $6.23. 

I don’t think IBM really understands that it has a major crisis on its hands.  The new CEO, who is a 30 IBM veteran and possibly numbed by that, is simply not creating any buzz and enthusiasm within the company that “we are betting it all on the cloud and it will lead us to major success.”  Instead, he said the following after releasing the dismal Q4 results: “In spite of the many challenges in 2020, we have made good progress.” This is a shocking statement after just announcing such disastrous results.  At the same time, Microsoft, Amazon, and Google are all registering growth rates in their cloud businesses of 30% to 50% versus year ago. 

There is simply no vigor, focus, urgency and raging determination coming from the IBM management, and that is what is badly needed.  Hopefully these Q4 results will be a wake-up call, given there is a lot of untapped potential in IBM’s many assets. 

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