IBM – the future is in the cloud

cloud-foundry+ibm-logoIBM, a traditional IT legacy company, is in the mist of change; the landscape has changed and the company must adapt in order to continue to be successful. Adapting to this new environment the company must shift focus away from consulting, design, and implementation of one-off IT systems and into cloud services.

Under Ginni Rometty, IBM has rapidly shifted its business portfolio, investing in what she calls a number of “strategic imperatives” comprised of Watson, cloud, security, services, systems, commerce, and analytics.
IBM has reported promising growth in their strategic imperatives, but the company’s transition is far from over and the company continues to struggle. On a positive note, the fourth quarter results, at close examination, are not as bad as they may appear at first glance.

IBM’s fourth quarter earnings report showed declining revenue and profits, to be expected for a company in a major transition. Revenue fell for the eleventh straight quarter to $24.1 billion, well below the $27.7 billion in the year-earlier quarter and the $24.8 billion that Wall Street expected. Net income slid to $5.5 billion, down 11% from the same quarter a year earlier. Why did this happen? The decline in revenue was anticipated as it reflected the divestiture of System X and Customer Care. Together, they had $1.6 billion of revenue in the fourth quarter of 2013, and currency movements registered about a $1.2 billion negative impact. If currency and getting rid of loser businesses is factored out, IBM’s revenue was actually in line with expectations.

IBM also announced the divestiture of its semiconductor manufacturing business. The three businesses it divested contributed $7 billion to revenue in 2013, but they lost about half a billion dollars. While net income decreased, the company’s profit margins increased and operating margins ended up above Wall Street estimates.

IBM has also been active in the partnership area. Apple Inc., Twitter, Inc., and SAP are IBM’s most important ones to date. IBM and SAP partnered together to offer cloud-computing services to companies. IBM provides infrastructure services and SAP runs its business applications on top of them.

IBM also uses Twitter’s data to help enterprises understand their customers, businesses, and other trends. Twitter data will be integrated into IBM’s big data analytics tools and added to BlueMix. This will allow businesses to write enterprise apps that include Twitter data. The company intends to train 10,000 consultants (IBM’s numbers are never small) to write custom enterprise apps that use Twitter data.

IBM’s partnership with Apple is crucial and promising. The two companies are offering solutions to businesses that use iPads with custom software. They released their first 10 apps in December, have twelve more planned to be released this quarter, and over 100 apps planned. The first 10 apps were for vertical industries, such as a flight planning app for airlines and a customer service app for insurance companies. Now, they are working on horizontal apps that any business could use. One example is a supply chain app, which helps companies match how much product they expect to sell with how many materials they order.

IBM is currently undervalued due to negative sentiment surrounding the stock. IBM is doing all the right moves to transition the company from a legacy IT custom-solutions company to a flexible, modern, cloud-based services organisation. IBM’s potential is vast and may be an excellent investment for an investor that has a long-term view.



All information contained herein and any opinions expressed in it are intended solely for the use of customers of Elgin AMC (“Elgin”). This document is not, and should not be construed as an offer or solicitation to buy or sell any product, security or any other financial instrument. Any opinions expressed in this document are subject to change in that notice. This information is a marketing communication for the purpose of the European Markets in Financial Instruments Directive (MiFID) and CySEC’s Rules. It has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research. This document is not based upon detailed analysis by Elgin of any, market, issuer or security named herein and does not constitute a formal research recommendation, either expressly or otherwise. It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. This document should not to be relied upon as authoritative or taken in substitution for the exercise of your own commercial judgment. This document has been prepared on the basis of economic data, trading patterns, actual market news and events, and is only valid on the date of publication. Elgin does not make any guarantee, representation or warranty, (either expressly or impliedly), as to the factual accuracy, completeness, or sufficiency of information contained herein. This document has been prepared by the author based upon informational sources believed to be reliable and prepared in good faith. Elgin does not make any representation or warranty, express or implied, as to the accuracy, completeness or correctness of this information. Elgin does not accept any liability for any loss or damage, howsoever caused, arising from any errors, omissions or reliance on any information or views contained in this document. The value of any securities mentioned in this document may move up or down, and the value of securities denominated in other currencies will also be subject to fluctuations in the relevant exchange rates. Securities issued in emerging markets are typically subject to greater volatility and risk of loss. Elgin’s officers, directors and employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time, add to or dispose of any such investment(s). This information is the intellectual property of Elgin. Redistribution or dissemination of this document is prohibited.

Elgin AMC is a trading name of Numisma Capital Ltd. Numisma Capital Ltd is regulated by the Cyprus Securities and Exchange Commission (CIF licence no. 122/10) Additional information from Elgin AMC is available upon request at