IBM’s CEO Ginni Rometty Ouster Imminent

Author: Steven Zolman

old IBM Photo Credit: Stefano Tinti

About 3 years ago, Ms. Virginia (Ginni) Rometty took over as the new CEO for IBM, and it has been anything but smooth sailing for her, the Company, IBM’s customers, the technology market, and perhaps most importantly, the IBM shareholders.  Since March 14, 2013 IBM has suffered through 11 consecutive quarters of poor performance.  At the start of that time, IBM’s stock price was $215.80 per share.  IBM stock has now fallen to $122.59 per share as of 22 January, a 43% reduction in value.

Back in 2012, when Ginni Rometty first took over, I was one of the first (if not the only) to predict that Ginni Rometty would fail as the new CEO of IBM, and published the Top 10 Reasons Why Ginni Rometty Will Fail as IBM’s New CEO and later, included a sequel to that blog called, IBM CEO Ginni Rometty:  Failing Fast.  After the most recent results, I now believe this new blog post will complete the trilogy, as it seems almost assured that Ginni’s days are numbered.

The problems continue to mount for IBM CEO Ginni Rometty, as recently, IBM was forced to announce that it has laid another huge egg in the form of its recent fiscal year 2015 report.  What’s worse – the company outlook for fiscal year 2016 shows no signs of improving.  In fact, it is quite clear that IBM has not yet hit the bottom.  The only real bright spot, on paper, is that IBM shows quite a nice progression in cloud computing revenue growth.  However, the detail behind those numbers is highly suspect at best, as in our experiences, it appears to be a common tactic for IBM to trump up awful out-of-compliance allegations against their customers, building up huge strawmen, only to offer their customers ‘a break’ if only they will purchase some new cloud offerings.  In some cases, the customers don’t use, and don’t even plan to use the IBM cloud services – EVER – they just see it as a way to reduce the financial obligation by ‘playing ball’.  In places where this has happened, and it has happened at some of the most famous logos you can possibly imagine, our clients are utterly furious and have made it their personal mission to completely eradicate IBM from their organizations.  Furthermore, in cases where customers are truly considering cloud computing, they are getting far better deals by the much bigger, much better, and much lower priced Amazon [Amazon Web Services (AWS)] offerings, and from highly competitive, highly capitalized players like Google [Google Compute Engine (GCE)] and (believe it or not) Microsoft [Microsoft (Azure) Infrastructure Services], among others.  Moreover, regardless of what you may or may not believe about IBM’s growing prowess in cloud computing, the other areas of the business are clearly, undisputedly in deep, deep trouble, and show no signs of turning around at all, let alone any time soon.

Some suggest that IBM should benefit from this industry shift to the cloud as not only a “cloud platform” company, but also as a supplier to cloud companies, but they fail to realize that the days of expensive, proprietary systems are rapidly nearing their end.  Today’s customers are not building web-scale IT with HP, IBM, Dell, Oracle, Cisco, and EMC, rather they are using a bevy of suppliers you have probably never heard of including Quanta, Big Switch, Mongo, and Pure Storage to name a few.  Customers of the future demand open, highly scalable architectures that are complemented by low cost operating models.  This is one of the reasons we recently blogged about the Dell/EMC deal, providing what we believe to be the Top 10 Reasons Why the Dell EMC Merger is DOA.

IBM CEO, Ginni Rometty, promised to fix all this, and turn this huge ship around.  Although, after plenty of time behind the wheel, it is clear that what she’s doing isn’t working.  IBM’s revenues have fallen from $106.9 billion in 2012 to $81.7 billion in 2015, a 24% reduction.  To address this challenge of revenue decline, Ginni was the principle sponsor of an internal IBM program called Roadmap 2015, which was IBM’s plan to achieve a $20/EPS value by the end of 2015.  In the face of falling revenue, Ginni’s plan was to slash costs and sell off business units in an attempt to improve profits in order to achieve this EPS objective.  This Earnings per Share (EPS) metric, once heralded by Ginny to exceed $20/share at IBM under her leadership by the end of 2015 now sits at $13.66/share (a 46% shortfall).  As a result, IBM stock is now trading at a 5-year low.

Ginni tried her best to grow company profits by executing her Roadmap 2015 project to achieve a $20/EPS, but no amount of employee layoffs, sold business units, or diminished outstanding stock could get it done.  To prove how desperate she was to improve the numbers, look no further than the GlobalFoundries deal, where unbelievably, IBM agreed to pay $1.5 billion just to get rid of this failing business unit.  Another example is that IBM tripled its debt, spending tens of billions of dollars to buy back its own stock in an effort to reduce the number of outstanding shares in a futile attempt to (somewhat falsely) prop up the EPS numbers.  In the end, none of these strategies were successful, and Ginny finally admitted (albeit quietly) some time ago that the company was not going to make the $20/EPS goal by the end of 2015 as they had long advised.

Ginni is either completely incompetent (highly doubtful), delusional (also highly unlikely), or disingenuously but faithfully towing the company line until the end (ding ding)!  About the most recent performance, she says, “We continue to make significant progress in our transformation to higher value. In 2015, our strategic imperatives of cloud, analytics, mobile, social and security grew 26 percent to $29 billion and now represent 35 percent of our total revenue.”  She went on to say, “We strengthened our existing portfolio while investing aggressively in new opportunities like Watson Health, Watson Internet of Things and hybrid cloud. As we transform to a cognitive solutions and cloud platform company, we are well positioned to continue delivering greater value to our clients and returning capital to our shareholders.”

Experts do NOT agree.  Most see continuing contraction and the potential for years of future declines.

All of this puts Ginni on the hot seat, and puts the IBM board in a really difficult position, and we believe it will require a strong message from the IBM board to ease investor concerns about another colossal disappointment from IBM and get Wall Street to take its foot off IBM’s throat.  That message will need to be in the form of Ginni’s replacement as we believe there is no reason for any regained confidence simply from a changed plan or ‘big action’.  Some speculate that IBM will finally pull the trigger on the long speculated acquisition of SAP, but with the litany of indictments from IBM’s past acquisition history, not even that would save her now.

I put the over/under at August 2016, which gives IBM enough time to find a suitable replacement, come up with a barely believable cover story, and hope that lightening will somehow strike between now and then (but of course it will not).

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  1. Joe says:

    IBM stopped being a transformational company 30 years ago. They missed boatloads of opportunities along the way from investing in Microsoft to AI. The problem is IBM management who are seldom technical but know all the buzzwords… they are in the drivers seat. Compare that to Google or Facebook, or even Microsoft today where the execs are engineers or extremely technical and forward thinking. Even Eric Schmitt of Alphabet/Google has a PhD in electrical engineering and computer science. As for IBM’s watso… that is a case in point of why IBM is going nowhere under Romnetty – as it will never amount to anything beyond the hype… Ya it can process data fast – whatever, big deal. But it isn’t really AI… It’s Alexa (of amazon fame) on steroids is all… a cloud based data pool with a SIRI like interface. True AI is being developed at Google, as well as DeepMind and others… AI is real machine learning… you don’t need to program it with natural language stuff (Watson)… it learns on its own… Ginty Romnetty, is hoping for a miracle, but the miracle isn’t going to be Watson… The only thing that can save IBM is to find a new CEO who is very technical and has a vision beyond playing with the financial balance sheets.

  2. Epping says:

    I have been with IBM for 22 years (contractor and full time). In that time I have seen IBM drift from a significant player with staff who were hugely motivated, and a belief that the ‘IBM Team’ meant something in the world – not just of IT. Today it is rapidly becoming an irrelevance in the world, yes they are investing time money and effort in ‘Cloud’ & the new ‘buzzword’ around IBM ‘Cognitive’. But these are such fledgeling markets that they are easy to make apparent in-roads. BUT, cloud in particular is a very narrow element of what IT means to the world. The hardware and software will always have a much broader feature, cloud will not – at this time – be everything to evreyone. IBM is heading at breakneck speed into this market area whilst shedding useful resources and financial potential before their ‘lives’ are spent. Ms Rometty – in my opinion – does not understand the business she has worked in for so long. OR, she is too weak to stand up to the financial muscle that is steering IBM along the path of ‘short term gain’. Morale is at an all time low, and going further downhill. The only up beat messages coming out of IBM are from the emrging countries in the IBM ‘fold’ India & China, but even these are now beginning to see the issues heading our way. Ginni needs to step aside, and quickly, but I fear too much damage may have already been done, and we are just waiting for the asset strippers to arrive and pick the bones

  3. Iain W says:

    IBM is now in terminal decline. Used to be a company that practiced ‘technology-planning’ which is the acquisition of technology to create competitiveness. IBM has slipped into the tyranny of the spreadsheet, the financial myopia of the MBA, etc. The only way back is technology-planning, otherwise the financial abyss will get bigger. Labour arbitrage to reduce costs is a pointless strategy. Just makes the figures look okay for a while.

  4. Rachel Murphy says:

    I worked for IBM for 14 yrs, I always wanted to work for IBM and when I was hired I was overjoyed. But it was a tough uphill battle from day 1 with impossible same day deadlines and little thanks for regular hours of extra work and close attention to detail, consistently improving any role I was given. I was offered a payout when IBM streamlined their business by cutting a whole division (one of 5) ie, Software Group – one of the most profitable I’d always thought. Enabled them to cut 100,000 heads in one go, that was 12 mths ago and I’ve enjoyed life outside the corporate world more than I could’ve thought, even though I only make about half the money. It pains me to see Big Blue go under but I admit I have to agree with most of what you’ve written in all 3 blog posts. My ex used to take the mickey big time about IBM when I worked for them, such that I couldn’t bear it. I equally would never show him this article or the others – wouldn’t give him the satisfaction (he predicted IBM’s demise years ago).

    • Just because he was right doesn’t mean he’s still not a jerk. 😉 Thanks for your comment.

      • Abbi says:

        one of the facts that IBM going in the wrong way of leading, very small story to get to the point.I applied to work for IBM and I submitted all the requirements needed, since I was not born in US and I received my bachelor degree in electronics with honor in new york. however I’m US citizen, I waited for the recruiter to contact me and finally they replied. I was very happy and excited to hear from them but the sad part when the recruiter asked me what the highest degree you received, even though I submitted my resume in their website.I answered her but when she realized I have an accent, she hanged up. Her name was Tina and she works as a recruiter in Georgia. How IBM hire people with a mentality like this. I don’t know if that was racial or discrimination or what. but someone like that disgraces a big company like IBM.

  5. Edith A Zang says:

    I felt there was a problem with IBM leadership ever since Virginia Rometty took over. I own a large number of IBM shares, and since she became CEO my thus far unrealized loss through this stock is more than $1 million. In the meantime, Ms. Rometty received a $5.5 million bonus for her performance this year. She should be fired and replaced immediately, before the company collapses and we, the shareholders, lose more of our investments. Of course, she would then be rewarded with a golden parachute, at our expense.

  6. WaverlyEllis says:

    IBM is the first company I’ve worked with since graduating college (been a long time). It has been a great company until the late 2013 when I started really seeing the effects of laying off highly experienced talents around delivery teams. Basically people who are experts in the field not just because they have skills but more so because they already know the playing field and what works for the clients. I’ve seen highly talented employees, extremely clever and hardworking employees I really looked up to, just leaving the company. The leadership not doing anything about it. Doesn’t care at all that these smart people that can really add value to the company just falling out like bugs. I’ve read your articles and to be honest, and to my dismay, I find them quite agreeable. There is a vision by the way – ‘to be essential to the world’ which you might already be aware of. The problem is, we can’t really be essential if we can’t deliver on our promises, because there has been a huge cut on our delivery teams – people who actually make it real for the clients.

    • Thanks for your comment, and your dismayed agreement with my writings in this area.

      I believe the pressure for Ginni to make the financial performance numbers is greater than it is for her to retain a long term strategy for IBM’s relevance.

      As a result, when she sees high value people walking out, she sees high costs leaving and remaining costs going down, which makes it easier for her to achieve her financial objectives.

      In my view, she is failing to properly weight the other side of the equation, the equation of long term value and ongoing relevance of IBM, which by your description is getting ever more impaired by the day.

      Seemingly what could potentially save IBM short of going private for a while to get their strategy back in order is a series of huge acquisitions of relevant players in their three stated growth areas.

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