Geekzone: technology news, blogs, forums
Guest
Welcome Guest.
You haven't logged in yet. If you don't have an account you can register now.
IBM stumbles on path to cloud
Posted on 21-Oct-2014 11:28 by Bill Bennett. | Tags Filed under: News.


IBM needs to reinvent itself to deal with cloud computing. Although the job was never going to be easy, IBM has an enviable track record on major change.

It is the organisation that defined the original computer business. IBM built a monopoly and lead the mainframe era. Although it was late into the PC game, when it arrived it redefined the small computer market with the iconic IBM PC.

IBM wasted no time exiting the PC business when margins evaporated. It got into the consulting game ahead of the pack. IBM switched focus to software. It moved from hardware to services more than a decade before that idea arrived on rival HPís radar.

Now IBM needs to show it has what it takes to compete with the likes of Amazon. So far it has struggled.

Cloud computing strikes at the core of IBMís business. It threatens the rivers of gold IBM makes selling big, expensive mainframe computers, along with the software and service revenue that comes in their wake.

Customers who buy IBM mainframes must invest millions. That means anticipating needs when the future is far from certain. Cloud means they only buy the computing they need, when they need it. Which explains why the mainframe market is falling.

IBMís response has been to offer its own cloud services. It acquired a small competitor, Softlayer, buying the capacity and skills needed to compete in the cloud.
Playing catch-up this way looks like a smart strategy.

Yet thereís an awkward payload. IBMís shareholders expect high profit margins. Cloud computing is a viable business. Done well the cloud makes a predictable income stream, but it is a low margin business.

And thatís where IBM is stumbling. It promised shareholders a high return. For the last five years it has told shareholders it would make US$20 in adjusted earnings per share by 2015.

That figure already looked doubtful. For the last ten quarters in a row, IBMís revenue has fallen. Management pulled out the stops to meet the US$20 target. It sacked workers, borrowed money, tried creative accounting. None of these moves did anything to help IBM compete with Amazon, Google or Microsoft in cloud computing.

Overnight IBM CEO Ginni Rometty abandoned the US$20 a share target. She paid GlobalFoundries ó no Iíve never heard of it either ó US$1.5 billion to take the chip business off IBMís books. Rometty also dropped a US$4.7 billion charge on the market.

IBM investors didnít like the news. The share price fell seven percent.

Grumpy IBM investors better get used to the idea that keeping the business relevant is more important than hitting financial milestones. That short-term gain, would be at a long-term cost. Perhaps even the demise of IBM ó a brand that has lasted more than 100 years.

IBMís long-term survival may hinge on building a cloud empire to compete head on with Amazon, Microsoft and others. Thatís worth a try and is a better choice than slow death.

Once IBM has established a cloud empire, it can wrap its lucrative software and services back into these offerings. That way it can recover some of the lost margin.

Bowing to investorís short term dictates or shoring-up unsustainable business models doesnít work. The smart move is to focus on creating products and services people want to buy.


Filed under: cloud Tagged: Amazon, enterprise, IBM



comments powered by Disqus




Trending now »

Hot discussions in our forums right now:

$1160 for a car battery??!!
Created by jonathan18, last reply by cadman on 19-Jan-2017 23:54 (45 replies)
Pages... 2 3


The President Of The USA: Donald Trump
Created by TimA, last reply by Sideface on 19-Jan-2017 11:19 (1743 replies)
Pages... 115 116 117


New Ford Mustang or Holden Commodore or alternatives
Created by MikeB4, last reply by WyleECoyoteNZ on 19-Jan-2017 17:06 (40 replies)
Pages... 2 3


Lost Mp3 collection, how to rebuild on the cheap (legally)?
Created by TeaLeaf, last reply by kickintheeye on 18-Jan-2017 23:05 (18 replies)
Pages... 2


Stockholm ambulances to trial blocking drivers' music so sirens can be heard
Created by Geektastic, last reply by Geektastic on 19-Jan-2017 22:37 (28 replies)
Pages... 2


Upsize my American houses to McMansion value deal.
Created by kingdragonfly, last reply by richms on 18-Jan-2017 15:48 (14 replies)

FibreX - how do I know if my home is pre-cabled?
Created by Stevo316, last reply by Stevo316 on 19-Jan-2017 23:29 (13 replies)

New Unlimited Fixed Broadband
Created by LivingSkinny, last reply by noroad on 19-Jan-2017 11:14 (55 replies)
Pages... 2 3 4