By Brenda J. Christie
The last nail was hammered into IBM's 2015 Roadmap coffin, a 2-year promise to deliver $20 Earnings Per Share (EPS), with the announcement of its 2014 results on January 20, 2015. IBM missed the mark. 2014 EPS was $15.59, not the $20 EPS promised in its 2015 Roadmap, a snapshot of which appears above.
IBM's 2014 financial results announcement also included notice that the 2015 strategic roadmap put in place by IBM's prior CEO, Sal Palmisano, was being abandoned. Its stock price, which closed at $157.14 at the end of the prior week, closed down at $156.95 the day of that announcement. However, despite missing the mark on 2014 EPS, many investors continue to have a lot of faith in IBM and this week, slightly more than a month after that announcement, the stock price closed above $161.00.
Reason for Optimism
There are many good things happening at IBM, despite the missed $20 EPS. IBM announced its latest mainframe computer, the System z13, on January 13, 2015. Then on February 24, 2015, IBM and Citi announced collaboration with developers to build the next generation of financial technology through the Citi Mobile Challenge. IBM is one of only three remaining bidders for the $11 Billion Department of Defense Healthcare Management System Modernization Contract. The DoD expects to announce the winner in June of 2015. IBM recently won a big contract with Marriott to update Marriott's datacenters to use IBM's latest Cloud Technology. Forrester has also designated IBM leader of the $187.5 billion infrastructure outsourcing market. The cautious optimism evident in the improving stock price appears to underscore such notable accomplishments.
What is IBM's New Roadmap?
IBM's new roadmap, as reported by Barrons and the New York Times following the February 26, 2015 IBM Analyst Day, will center around, Analytics, hybrid cloud, security, mobility and social apps. IBM's projection of a 2015 EPS of $15.76 to $16.50 would also be facilitated by more acquisitions and strategic partnerships such as the recent IBM partnership with Apple and Twitter. Execution of such strategy would deliver revenue of $40 billion by 2018, reports a skeptical 24/7Wall Street 24/7. IBM's new Roadmap also includes plans to continue innovating within its core portfolio areas of software and mainframe hardware.
Can't See The Forest for the Trees?
A few week points came out of IBM's Analyst meeting, held in New York on February 26, 2015:
- IBM plans to make substantial gains in industries already dominated by Microsoft and Oracle.
- IBM seems to be hedging its latest bet, i.e., investing in Analytics, Cloud Computing, Mobility, Security and partnerships, by blaming fluctuations in foreign currency prices attributable to a stronger dollar which effectively lowers the value of IBM's investments and assets held abroad. Institutional Investors will probably recognize this as a weak reason for missing projections due to the fact that it is possible to hedge against such currency fluctuations.
So the questions here are (1) does ignoring your competition make them go away, or make them less worthy opponents and (2) does the future attribution to missed estimates reflect an underlying disbelief that making the mark this time is doable?
As for Ginni Rometty
As with all things, time will tell. In time, we will also see whether Ginni Rometty retains her post as IBM CEO. I admire her willingness to cut IBM's losses by abandoning the strategy put in place by her predecessor. It takes a strong leader to acknowledge such a reality. It's likely that a lot of male CEO's would view abandoning the 2015 Roadmap as failure and just stayed the course. It is equally likely that with the knowledge that the 2015 Roadmap was doomed, many male CEOs would have taken their golden parachutes and bailed similar to the way Sal Palmisano did. My gut and knowledge of how Boards work leads me to believe Ginni Rometty will be ousted. There are too many contenders waiting in the wings, and today's culture expects fast results. 2018 may just be too far away to wait for the $40 billion revenue promised by this latest Roadmap.
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