IBM (IBM) chief executive Virginia “Ginni” Rometty is passing up her annual bonus.
It’s a rare move for any tech CEO, and it signals that Rometty knows she’s got trouble on her hands. She made the announcement Tuesday as the company missed Wall Street’s expectations yet again for its quarterly earnings, reporting a 5% annual revenue decline to $99.8 billion for 2013. Net income according to generally accepted accounting principles fell 1% for the year, to $16.5 billion.
It’s the third quarter in a row that Big Blue has left analysts feeling disappointed.
In short, a technology company that has built its reputation on moving fast to exit aging businesses while being the first to enter new businesses is not moving fast enough. In the two years since Rometty took the top job at IBM, the Armonk, N.Y.-based company has fallen behind in building the tools of the future — namely for cloud computing, mobility, social networking, and big data — while struggling with archaic hardware businesses it has been too slow to sell.
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In giving up her bonus, Rometty is signaling that she’s willing to take responsibility for the transformation of IBM — what she calls “restless reinvention.”
Still, not everything is doom and gloom at the company. IBM reported a record $5.73 quarterly EPS, up 12% for the quarter, which will please shareholders seeking more value from their holdings. Still, that figure doesn’t always provide insight into the company’s ability to grow in the future. IBM’s board authorized a $15 billion authorization for share repurchase last October, so it’s likely the company can continue this strategy. Meanwhile, IBM’s software business grew 4%. The company’s service backlog is $143 billion.
Sensing trouble, IBM has in recent weeks made additional efforts to get traction in the markets that have eluded it. On Jan. 9, IBM announced a $1 billion investment in a new IBM Watson business unit that will employ 2,000 people in New York and include a $100 million fund to boost innovation within its Watson Developers Cloud. Following this was a Jan. 17 announcement that the company will invest $1.2 billion to expand its global cloud footprint, doubling the company’s cloud capacity by building up to 40 new data centers in 2014. In the past four years, IBM has invested more than $7 billion in cloud-related acquisitions.
But IBM’s traditional hardware businesses, which the company has moved aggressively to offload over the last decade, continues to weigh it down. The company has revived its efforts to sell its low-end server business. Efforts were reportedly underway to sell the business to Lenovo last spring, but they broke down over price. Lenovo is one of several companies rumored to be in the mix today.
Some of IBM’s considerable investment shows early signs of taking hold. At $4.3 billion, the company’s cloud business is up nearly 70% for the year, positioning it to be among the top cloud-computing contenders. (According to analyst estimates, competitor Amazon (AMZN) managed $3.2 billion in revenues over the past year, though Amazon does not break out the figure.) According to the company’s ambitious 2015 roadmap, IBM will have a $7 billion cloud business by 2015. “IBM is making the investments to be one of the top two or three cloud-based players in the next five years,” says IDC Chief Analyst Frank Gens. “Now it’ll all hinge on execution.”
IBM looks to be positioning itself to be in the top three cloud players in the next five years, along with perhaps Amazon and Microsoft (MSFT). Will it succeed? It will all depend on one word: execution.