IBM, under pressure to reverse declining profit, is racing to sign up new cloud-related business as it tries to prove to investors that it can quickly transition to a new era of technology.
International Business Machines Corp. announced deals yesterday with WPP Plc, the world’s largest advertising company, and financial-data provider Thomson Reuters Corp., the latest in a string of new partnerships for its cloud-computing offerings. At least four deals in the past week were publicized as cloud- related -- and those for which terms were disclosed amount to more than $4 billion in sales in the next decade.
The additional revenue comes at a critical time for IBM, which surprised investors in October by scrapping its long-held earnings forecast for 2015 and projecting a decline in annual profit for this year, the first drop since 2002. Chief Executive Officer Ginni Rometty is working to reshape IBM and accelerate the transition as customers increasingly move data and software to the cloud instead of on-site servers -- a tall order for a company with more than $90 billion in annual revenue.
“IBM has been on a journey in cloud to build a significant cloud portfolio,” Philip Guido, general manager for IBM North America, said in a phone interview. “As we work on this, think about it as being between an old model and a new model.”
IBM, based in Armonk, New York, said it can’t accurately predict what percentage of the new contracts will be cloud services, cloud infrastructure or on-premise IT because the agreements evolve over time.
Total sales at IBM for this year are projected to drop to $94 billion, according to the average of analysts’ estimates compiled by Bloomberg. IBM is predicting about $7 billion in total cloud-related sales next year, with $3 billion of that coming from new offerings and the rest from older products shifted to be delivered via the cloud.
When companies move to cloud computing, software and data can be stored on remote servers, instead of installed on the premises. In the past, many software offerings were sold to customers in a licensing model, where clients pay upfront for the right to use the tools for an allotted amount of time. With cloud-based services, many are subscription-based and customers pay for what they use, giving businesses the opportunity to be more efficient and lower the total payments.
IBM said yesterday that its deal with London-based WPP is to create a “hybrid cloud infrastructure,” which links on- premise data centers and rented capacity off site. The seven- year agreement will bring in $1.25 billion, or about $178.5 million a year on average.
Separately, IBM said it will deliver information technology support services for New York-based Thomson Reuters. Terms weren’t disclosed.
Bloomberg LP, the parent company of Bloomberg News, competes with Thomson Reuters in providing news and information.
Other cloud deals this week include a $2 billion, 10-year services agreement with ABN AMRO Bank NV, the state-owned Dutch lender. IBM will manage ABN’s private cloud, which is comprised of IT equipment in facilities owned or rented by the financial services firm itself.
Last month, IBM announced a seven-year, 1 billion euro ($1.24 billion) outsourcing contract with Deutsche Lufthansa AG to “make it ready for the innovation of cloud computing.”
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