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IBM CEO Makes $4 Billion Bet

By
  • Alex Barinka
Published
  • February 26 2015, 5:06pm EST

(Bloomberg) -- IBM’s Ginni Rometty on Thursday said she plans to spend $4 billion to boost sales from new businesses to $40 billion over four years, as she prepared to face investors eager to see signs of reinvention at the company.

International Business Machines Corp.’s shares have fallen 11 percent since Chief Executive Officer Rometty tossed a long-held earnings-per-share goal in October. And the 103-year -old technology giant’s profit for 2014 represented the first drop on that basis in more than a decade.

 The CEO, who spoke on a call with journalists ahead of an investor meeting, has been seeking to transform IBM to keep up with newer competitors in an industry undergoing what she’s called “unprecedented change.” Sales from her newer initiatives -- like cloud computing, data analytics and mobile offerings -- haven’t grown fast enough to outpace declines in older businesses. Investors are looking for a plan on how IBM will execute its reinvention this year.

Rometty said that she and her Chief Financial Officer Martin Schroeter plan on “going to go into detail to be sure there’s very clear clarity, there’s clarity on IBM’s future.” Spending, including capital expenditures and research and development, on those newer initiatives should help reach $40 billion in revenue from those businesses in four years, or almost half of 2014 sales, the CEO said.

Traditional Businesses

Still, investors will also want to know how she’s going to revive demand for its traditional offerings like services and hardware, which have dragged down sales for three straight years.

Rometty gave guidance of low-single-digit revenue growth and high-single digit earnings-per-share growth in the “longer-term.” She will need her older offerings to sell to help get there.

“The key investment controversy for IBM is not just about how fast its growth businesses are growing, but rather how fast its remaining core businesses might decline,” Toni Sacconaghi, an analyst at Sanford C. Bernstein & Co. wrote in a Feb. 24 note. “We continue to believe that IBM is a show-me story and we see no near-term catalyst for the stock.”

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