IBM has survived major technology sector upheavals in its more than 100-year history, but now it’s playing catch-up in cloud computing and AI.
The technology sector demands a degree of adaptability like no other. Thus far, IBM has been able to reinvent itself and survive, if not always thrive. It remains one of the world’s biggest IT firms, with nearly 390,000 employees. Now it faces another existential threat: moving to the cloud, and finding its place in AI. The company is optimistic, despite 21 quarters of falling year-on-year revenues. This month revenues dropped less than expected. On October 18, IBM’s shares rose by 8.9%, the biggest one-day gain since 2009. There are signs that growth could return in the next quarter.
Michael Cusumano, a business professor at the Massachusetts Institute of Technology, posits that if big IT firms like IBM fail to adapt, it is because there’s more to adaptation than adopting new technology. Companies need to re-examine their brand, and the nuances of how they do business. IBM nearly perished in the 1990s when mainframe sales withered, but it found a way to stay ahead in technology, nimbly latching on to the internet and open-source software. It also evaluated its businesses, and had the foresight to leave PCs and low-end servers behind.
The story has unfolded differently with the cloud. While IBM spotted the trend early, it got a late start in the business. This is especially the case with regard to the public cloud. Amazon and Microsoft lead in this space, with IBM a distant third. According to Steve Milunovich of UBS, over 40% of its revenues come from products and services in direct competition with public cloud offerings, at a time when more firms are moving applications into the cloud. IBM has had missteps in AI as well. In 2013 it launched a big data analytics business, but its progress has disappointed.
IBM is currently developing cybersecurity, mobile services and blockchain-based offerings in addition to cloud computing and AI. Unlike younger competitors, it is doing so while managing the winding-down of legacy businesses. “It’s like having to run up an escalator in the wrong direction”, says Frank Gens of IDC. One thing working in IBM’s favour is a seasonal trend, The Economist suggests, as Chief Information Officers are looking to spend their budgets this time of year.
Revenues from IBM’s core business in conventional computing fell by 9% in the latest quarter, but its “strategic imperatives” are gaining ground. Cloud and AI grew by 10%, up from 7%. The new businesses are generating a growing portion of IBM’s revenues – currently 45%, up two percentage points from the previous quarter. “We are now exactly where we promised early this year we would be,” said Chief Financial Officer Martin Schroeter.
