Geekzone: technology news, blogs, forums
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:

Vodafone always connected
Created by freitasm, last reply by jjnz1 on 25-Oct-2016 18:53 (18 replies)
Pages... 2

Microsoft's anti-competitive AV stance?
Created by kiwifidget, last reply by TwoSeven on 25-Oct-2016 18:31 (14 replies)

Galaxy Note 7 Announcement and Owners' Thread
Created by eracode, last reply by julianz on 25-Oct-2016 16:52 (1192 replies)
Pages... 78 79 80

Sony XZ Owners discussion
Created by networkn, last reply by dafman on 25-Oct-2016 16:02 (112 replies)
Pages... 6 7 8

Shifting ISP and domain name
Created by noob, last reply by noob on 25-Oct-2016 18:45 (13 replies)

Rise of the machines
Created by Rikkitic, last reply by richms on 25-Oct-2016 12:41 (40 replies)
Pages... 2 3

Gigabit cable now available
Created by sub, last reply by SteveC on 24-Oct-2016 22:51 (61 replies)
Pages... 3 4 5

Kiwibank Platinum by fees not by service?
Created by joker97, last reply by openmedia on 22-Oct-2016 11:23 (22 replies)
Pages... 2