Ginny Rometty, IBM (IBM)
Ginny Rometty, who took over from Sam Palmisano as CEO of IBM (IBM) in January 2012, faces significant headwinds helping Big Blue transform itself for the 21st century.
Although Rometty has been instrumental in turning the IT giant’s attention toward the revolution in cloud computing, the transition is likely to be slower and rockier than shareholders hope.
True, IBM made $1 billion in cloud revenue last quarter, but those gains didn’t come close to offsetting declines in software and server revenues. IBM’s Systems and Technology segment last month reported $3.2 billion in revenues in the third quarter — down 17% from a year earlier. Its server hardware business took an even bigger hit, coming in 38% below last year’s results for the same quarter. The company’s mainframe and low-end server and storage hardware revenues took a hit as well, although IBM’s System X mainframe business gained.
Still, these numbers show a steep decline in the company’s traditional hardware and software businesses that will not immediately be offset by gains on the cloud side of the house. A more ominous sign: sales in China, which account for 5% of IBM’s total revenue, are falling hard and fast — down 22% in the last quarter alone. Big Blue also faces tough competition in the cloud arena, where vendors like Amazon (AMZN) are slashing prices to gain market share.
Every major advancement in information technology has a disruptive impact on established market players. Ginny Rometty gets it and is refocusing the company in growth areas like cloud, Big Data and business intelligence. In the government space, IBM’s Smart Cities initiative eventually will pay off. Still, the pace of change often gives leaner, meaner competitors the edge.
Although many of these factors are beyond her control, IBM stock is down 4% since Ginny Rometty took over — the Dow is up 30% during that time frame and the S&P 500 has gained more than 40%. That kind of disparity can make shareholders nervous.
Although Warren Buffett remains a believer in IBM, it doesn’t help that hedge-fund superstar Stan Druckenmiller is shorting the stock.