IBM under fire

When enterprises make bets on technology two factors that have to be considered are the financial health of the supplier and its long-term strategy.

Obviously, if the vendor is in a shaky state the CIO has to think twice about buying its products and services. And even if the products are good, if the strategy of the pieces doesn’t make sense or keep up with industry trends there ought to be concern.

Which brings us to interpreting IBM Corp.’s latest quarterly financial results for the period ending Sept, 30. It had a $3.5 billion (all figures US) profit, down 17 per cent for the same period a year ago. It was the 10 consecutive quarter of falling revenue.

What’s going on and should CIOs be concerned? Obviously the company is still profitable, and its strategy of getting rid of commodity products (selling the PC division to Lenovo in 2005, the small printer division to Ricoh  in 2007 and its x86 server business to Lenovo this year) has merit: Dell has been forced to privatize and Hewlett-Packard has seen the wisdom of spinning off its PC and printer business.

Meanwhile IBM turned deeply into software, and then into the cloud. The question is has it invested in those technologies wisely, particularly to meet customer needs? The blunt financial numbers suggest not.

The latest to excoriate IBM’s results is management consultant Steve Denning, who, like others, complains in a column the company has been late to the cloud, alleges the purchase of SoftLayer for the basis of its cloud services is one of a number of wrong moves.

CEO Ginny Rometty, at the top since 2012, is accused of making “tricks of financial engineering, share buybacks, tax gadgets, cost-cutting and hastily assembled acquisitions.” Her predecessor, Sam Palmisano, is accused of destroying the soul of the company by outsourcing IT services. Anonymous staff are quoted that the company relies too much on revenue from mainframe customers and isn’t nimble.

Proof of this last might the the recent loss of a CIA contract to Amazon.

“The reality is that IBM and its core accounts are huddled together on sinking ship that is basically out of touch with the marketplace,” Denniing argues, “with an obsolete approach to management (maximizing shareholder value and hierarchical bureaucracy) and frightened of the future.”

The company is making a big bet with the SoftLayer infrastructure as a service (IaaS) play, and deals with Microsoft and Apple. We’ll see in a year if they pay off.

“IBM needs to build on its strengths,” Denning says. “IBM was once a great company that respected and rewarded its employees and served its communities and society.  It’s a company that still has the power to change the world if only it would choose to.”

Howard Solomon
Howard Solomon
Currently a freelance writer, I'm the former editor of and Computing Canada. An IT journalist since 1997, I've written for several of ITWC's sister publications including and Computer Dealer News. Before that I was a staff reporter at the Calgary Herald and the Brampton (Ont.) Daily Times. I can be reached at hsolomon [@]

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