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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