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IBM Partners: Don’t Panic

Even as its cloud services and big data revenues grow, IBM Corp. today delivered another big quarterly revenue miss. The company also slashed its fiscal 2015 revenue guidance. In some ways, I wonder if CEO Ginni Rometty is running out of time. But overall, there are still opportunities for IBM channel partners — if you know where to look for them.

First, the big picture. For IBM’s Q3 2015, according to Bloomberg:

“Revenue fell 14 percent to $19.3 billion, marking the 14th straight period of declines. The stronger U.S. dollar reduced sales by 9 percentage points, International Business Machines Corp. said in a statement Monday. Analysts projected $19.6 billion on average, according to data compiled by Bloomberg. Profit excluding some items was $3.34 a share, compared with the $3.30 average estimate from analysts.”

The net result: IBM shares are down nearly 5 percent in after-hours trading, moving near a 52-week low.

IBM’s Strategic Growth Priorities

Among the bright spots, depending on how you look at the situation:

  • IBM’s total cloud revenue was $9.4 billion over the past 12 months but I’m always wary of that figure since it’s not really recurring revenue. Instead, it includes hardware and software sold for private cloud deployments.
  • Far more important (at least in my mind), IBM’s cloud services revenues hit an annual run rate of $4.5 billion, up from $3.1 billion in Q3 2014. Still, divide the $4.5 billion run rate by 12 months, and IBM’s true cloud services revenue stands at only about $375 million per month– not nearly enough to offset Big Blue’s struggling hardware and software sales.
  • Business analytics revenue was up 19 percent year-to-date adjusted for currency. But again, that’s a glass-half-full figure. Without the currency adjustment, analytics revenues were only up 9 percent year to date.
martin schroeter

IBM CFO Martin Schroeter

During IBM’s earnings call with Wall Street analytics this evening, CFO Martin Schroeter insisted that the company has the right strategy for business transformation — but the transformation will take time.

And more reality checks will arrive later this week as Microsoft, Google and Amazon announce quarterly results that will surely highlight cloud services momentum.

Is Ginni Rometty Running Out of Time?

Ginni Rometty succeeded former CEO Sam Palmisano in January 2012. Few people said it publicly at the time, but Rometty inherited a company that was poorly positioned for the next major IT waves — cloud computing, mobile, social and big data.

For her first few quarters as CEO, Rometty maintained long-term earnings goals — even as IBM’s financial results began to erode across hardware, software and services. By October 2014, Rometty finally abandoned the 2015 earnings targets, and she accelerated the company’s cloud and big data investments, in particular.

By February 2015, I thought IBM had finally gained enough cloud momentum to make IBM’s stock attractive to dividend investors. Boy was I wrong. Shares are down at last 8 percent since that time — and they’re continuing to fall in after hours trading tonight.

Still, I don’t point the finger of blame at Rometty. She inherited an empire built on yesterday’s revenue models. Her error was not waking up to the problems sooner. Overall, I do feel IBM is on the right course for the long haul. And that means Rometty deserves some more time — especially if she finds a way to sell off more hardware businesses, at least in my mind.

What It Means for Channel Partners

For IBM channel partners, there are still opportunities abound.

For instance, take a look at IBM’s ecosystem of cloud ISVs. A prime example: Continuum Managed Services runs its backup and disaster recovery service in IBM’s SoftLayer cloud. It’s designed for managed services providers (MSPs). Moreover, a growing number of ISVs plug into IBM’s BlueMix and Watson Analytics partner ecosystems.

Still, there’s no denying that IBM’s traditional IT channels — hardware, software and services — must be feeling the squeeze. That’s why IBM changed course to cloud and big data services. And it explains why Dell is buying EMC — a hardware deal that also includes VMware for software and cloud benefits.

IBM survived even deeper losses in the early 1990s. To rebuild the company, then-CEO Lou Gerstner jumped on the IT services wave before most folks saw it building. This time around, IBM isn’t a first-mover to new opportunities like cloud and big data. And that means Rometty’s turnaround plan may take far longer in 2015 than Gerstner’s turnaround plan from two decades ago…

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