IBM’s cloud provides little silver lining

This article first appeared in The Edge Financial Daily, on April 21, 2017.
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NEW YORK: IBM’s cloud provides little silver lining. Big Blue fell short of investor expectations and reported its 20th consecutive quarter of falling revenue. Boss Ginni Rometty keeps talking up artificial intelligence (AI) and remote servers and services. Competition, however, may prove too formidable.

All the financial engineering in the world — and IBM has engaged in a lot of it over the past decade by selling businesses and borrowing to buy back stock — can’t hide that the US$160 billion (RM704 billion) company has been caught short by big shifts in technology. The switch to cloud computing and programmes has curbed demand for its consultants, hardware and traditional software.

It has survived mass extinctions before, but there’s mounting scepticism it can thrive in the current climate. Over the past five years, the company’s shares have fallen 16% compared to a 68% increase for the S&P 500 Index.The future for IBM resides in what it calls “Strategic Imperatives.” These initiatives, which include the AI initiative Watson and cloud operations, grew 12% over the past year and now account for more than 40% of total revenue.

Ongoing opacity makes it hard to say exactly what it means, though. IBM doesn’t break out Watson’s figures, for example, because it says it’s a “golden thread” weaving throughout the company. The Cognitive Solutions arm in which Watson is housed only grew 2% over the past year. All other divisions shrank.

The outlines of IBM’s cloud business are similarly misty. It generated US$14.6 billion of revenue — and the services parts of it are expanding at nearly a 60% annual clip. An “exit run rate” the company provides for this business, however, is fuzzy, and it’s also hard to discern if it’s additional revenue. By comparison, Amazon Web Services, which is widely considered the industry leader, reported US$12.2 billion of sales.

Google and Microsoft also are gunning hard to run the data centres and applications needed by companies big and small. The result is brutal price and technological competition. There’s no clear sign yet that IBM can keep up. — Reuters