Dinosaur Down: IBM’s Q3 Earnings


Scene: Armonk, New York

The earnings release speaks for itself (love that typeface – they must still do press releases on a Selectric typewriter in the IBM museum), but a few comments:

A billion dollar (as in $1,000,000,000) miss on the top line. Everything in varying levels of freefall, led by the swan dive of the hardware business (Power Series down 38%!). After a decade of the consistency so prized by Wall Street, that is three misses in a row for IBM and six straight quarters of declining revenue. Yet they beat their EPS number (modulo “other stuff”) and recommitted to the EPS roadmap for the year. Somehow, profits keep going up even as revenue declines (key contributor: a materially lower tax rate).

The earnings release in a nutshell: “Growth markets revenue down 9 percent”.

Cloud is starting to bite IBM and as I have noted, they lack a relevance amidst generational change. The company made some more detailed yet meaningless claims about cloud revenue. As with Q2, “cloud revenue up more than 70 percent year to date” but with no definition of what constitutes cloud (last week they were out making a distinction between “cloud-enabled” and actual cloud services). They did break new ground and say “$460 million is delivered as a cloud service” which presumably is mostly SoftLayer. Most glaring, IBM still doesn’t seem to have any material customer references, either in terms of the cloud technology being consumed or in terms of business impact.

IBM’s fundamental problem: they supply those being disrupted by technology, not those doing the disrupting. Today an IBM dependency can be an existential risk.

6 responses

  1. > IBM’s fundamental problem: they supply those being disrupted by technology, not those doing the disrupting

    Um, much could be said for ‘supplying’ organizations like VMware, Citrix, CA, HP, Dell, Microsoft and BMC. I guess you’ve written off most of the IT industry with your generalization.

  2. Everyone with technology rooted in a previous generation is going to be challenged to be relevant in the new era, but none more so than IBM. I focus on them because they are still bigger than these other guys and there is a widely held belief that IBM’s EPS roadmap is somehow immune from the underlying market and their product portfolio doesn’t really matter. And I focus on them because they’ve been hollowed out as technology company so it is much harder for them to evolve their portfolio. Their acquisition model of jacking maintenance while letting acquired products atrophy is not going to work.

    VMware and Citrix continue to grow (versus IBM shrinking) and have technology relevant to the cloud. Microsoft will make the transition to cloud just fine – Azure increasingly looks like the clear challenger to AWS and Office 365 is Microsoft’s to screw up. HP is in the same boat as IBM in a lot of ways as an enterprise solutions vendor, but they’re at least trying with HP Cloud. Even Dell and HP’s hardware businesses are in (relatively) better shape than IBM’s. And I’ll admit I can’t speak for the state of CA and BMC which doesn’t bode well for their prospects.

  3. Reluctantly, I believe that the “Dinosaur” metaphor is a valid one, because the agility of youth now fails some of our larger hardware vendors and their somewhat aged, focused and analytical approach to today’s problems leaves them lacking the agility to react to the challenges that face them and their voracious appetites for the acquisition of agile, innovative and enterprising business takes them so long to digest that the end result is totally lost in the transition.

    …and of course then we have the battle of the dinosaurs, where we only need to look at the likes of HP/Compaq and Oracle/Sun to see where that leads…

  4. […] on the money comes the feature pic in this post from Charles Fitzgerald and his right-on summary of […]

  5. Cloud offerings need servers, switching gear etc too. The problem is the consolidation it brings. Rather than each 100 employee company running a web server at 1% load you end up with a cloud provider buying a couple servers and offering redundancy for a small cost.

    The industry as a whole will likely shrink in $ per person value and will have to rely on more people (aka developing world) for growth … but there is only so many developing world countries left and as they develop there population growth rate tends to slow.

    Heck you have to look no further than Apple giving iWork away: they can’t even get $10 for their software anymore. Free offerings have made people expect everything to be free but there is only so many Viagra pills that can be sold via banner ads to supplement the lost revenue.

  6. Yup, IT is going to get a lot more efficient and people are not going to buying those servers or switches from IBM. Nor are they going to be buying IBM complexity/consulting services. IBM used to get away with selling complexity at very high prices when they were the high end of the market and solved the “hard problems”. That is no longer true – IBM can’t compete for the biggest cloud scale operations on capability or cost. Hard to be the high cost offer in the lower end of the market.

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