Ginny Rometty, chair and chief executive officer of IBM, promised changes after Big Blue reported another quarter of disappointing sales Wednesday.
On Thursday, Bloomberg news learned that IBM is putting Bruno Di Leo, its head of sales, in charge of setting up a new team for growth markets. Bloomberg cited a source “with knowledge of the matter.:
The Wall Street Journal carried a similar report.
James Bramante, who had overseen growth markets, will be reassigned to a position to be announced, said the person, who asked not to be identified because the changes haven’t been disclosed.
James Sciales, an IBM spokesman, didn’t immediately respond to a request for comment.
The changes came after IBM reported that sales in the third quarter fell for the first time.
IBM reported its sixth straight quarter of sales declines amid sluggish demand for computer hardware. And Wall Street didn’t like the news.
IBM (NYSE: IBM) shares plunged 7 percent, or more than $14, at the open of trading on Thursday. Shares traded at $172.58 to start the day, down from $186.73 at Wednesday’s close.
More than 4 million shares were traded in the first 15 minutes if trading – higher than the daily average of 3.6 million.
“In the third-quarter we continued to expand operating margins and increased earnings per share, but fell short on revenue. Where we had identified high growth opportunities and pursued them aggressively – cloud, mobile, business analytics, and security – we continued to show strong growth. This underscores our strategy to continuously transform the company to high value,” Rometty said.
“We are taking action to improve execution in our growth markets unit and in the elements of our hardware businesses that are under performing. Given these actions, our strategic initiatives and the strength of our model, we are maintaining our view for the full year and remain confident in our ability to achieve at least $20 operating [earnings per share] in 2015.”
[Inside IBM’s earnings: Analyst sees good, ominous signs.]
Revenue fell to $23.7 billion in the quarter. Analysts had estimated $24.7 billion on average, according to data compiled by Bloomberg.
IBM has been shifting its focus to the software business as demand for hardware products, including computer servers, continue to decline. Even the company’s traditional growth markets — developing economies overseas, including China — didn’t help prop up sales last quarter. IBM posted the first revenue decline in those markets in its history.
“Unless IBM begins to rebound in these regions meaningfully, we believe that it will be difficult for IBM to see any upside to its operating results given the pressure on revenue and profitability,” Ben Reitzes, an analyst with Barclays Plc, said in a report last week. With headwinds in the hardware business, “the company may need a major overhaul of its strategy to really muster any growth in the hardware division long-term.”
IBM employs some 10,000 people across North Carolina. (Details from IBM’s financials can be read online.)
“IBM has been challenged with changing the model on the hardware front, and now the growth markets are a surprise drop,” said Chris Ambrose, an analyst at Gartner Inc. While pursuing higher-margin markets is the right move, “they still have to show revenue growth at some point,” he added.
IBM shares fell as low as $174.80 in extended trading yesterday after the results were posted. The stock, down 2.5 percent this year, had closed at $186.73 earlier in New York.
The company lost $713 million in its hardware business in the first nine months of this year, compared with $253 million in profit in the year-earlier period. Revenue from growth markets shrank 9 percent last quarter. Chinese sales tumbled more than 20 percent as the country worked on a plan for economic policy, Chief Financial Officer Mark Loughridge said on a conference call.
Cloud Revenue
To make up for the slowdown, the company is looking to cloud computing — the delivery of software and services online — and it divulged revenue from that market for the first time. IBM generated more than $1 billion in revenue from cloud products and services in the quarter. The disclosure follows an investigation by the U.S. Securities and Exchange Commission into the finances surrounding the company’s cloud business.
Net income rose 5.7 percent to $4 billion, or $3.68 a share, from $3.8 billion, or $3.33, a year earlier. Excluding some items, earnings were $3.99 a share in the period, topping the $3.96 predicted by analysts.
IBM is working to rid itself of commodity products, shifting instead toward software-focused businesses that generate higher profit margins. The company today reiterated its goal of reaching $20 a share in earnings by 2015, up from $15.25 last year.
IBM agreed to sell off its customer-service unit to Synnex Corp. for $505 million in September. It’s also spending more than $800 million to buy Trusteer Inc., a software security company, people familiar with the deal said in August.
SoftLayer Deal
In July, IBM acquired SoftLayer Technologies Inc., a cloud- computing storage provider that will help it compete with Amazon.com Inc. It paid almost $2 billion this year for the Dallas-based company, said a person with knowledge of the transaction.
IBM’s hardware business continued to drag the company down, with revenue declining 17 percent in the third quarter. Rometty shook up the management of the division in April, replacing Rod Adkins with Tom Rosamilia, who had been overseeing corporate strategy.
The company had also been trying to sell parts of its server division to Lenovo Group Ltd., before discussions broke down in early May due to disagreements over price, people familiar with the matter said at the time.
In the second quarter, IBM spent $1 billion to restructure its workforce, cutting more than 3,300 jobs in the U.S. and Canada alone, according to Alliance@IBM, an employee group. Chief Financial Officer Mark Loughridge said earlier this year that divestitures will make up for that expense.
