IBM Earnings Reflect Just How Difficult Transformation Really Is


IBM logo on earthscape.
Image Credits: Daniel Voyager (opens in a new window)

The news came out this week that IBM had another bad quarterly report card. Unfortunately for IBM it marked the 10th straight quarter of falling revenue, indicating that maybe something’s not quite right at Big Blue. IBM’s earnings illustrate the challenge they face as they transform themselves into a cloud-centric company.

It could be that it will take some time for that transformation to bear fruit or it could be that it’s just harder for large companies like IBM to make big money in the cloud, a harsh lesson not just for IBM, but also for other big companies like HP, Red Hat, EMC and Cisco who are trying to make similar transformations.

IBM deserves a great deal of credit, however for simply getting to where they are today as they put their cloud business front center. In just a couple of years, they have put together a 3-tiered cloud strategy starting with a catalogue of over 100 SaaS business applications. They also bought Infrastructure as a Service provider SoftLayer last year, then invested big money in building a network of data centers around the world. SoftLayer had 13 data centers when IBM bought them. A billion dollars in investment later, they have 35 with 5 more scheduled to come on board by the end of the year.

Later they released a development platform called Bluemix built on top of SoftLayer, so customers can build their own applications on the IBM cloud platform. They opened an app marketplace earlier this year and hope to change the way they sell software from a team of sales people in blue suits to an online model where people, try and then buy (and it also provides a commercial outlet for Bluemix developers to sell their wares under the IBM brand umbrella). They have continued to develop Watson technology and commercialized it as a cloud platform with IBM and outside parties building a variety of applications on top of it.

They’ve done all of this remarkably quickly

What’s more, the company has made key partnerships with other large enterprise vendors such as SAP and Microsoft. IBM announced that SAP will use Softlayer data centers for SAP HANA in the cloud and Microsoft and IBM have connected around running its traditional enterprise software like WebSphere on Azure in virtual machines, in addition to running Microsoft software on SoftLayer. IBM is clearly doing whatever it can to move the company to become a cloud platform play.

There is evidence in the latest quarterly report that the new strategy could be working, at least to some extent. Cloud revenue is up 50 percent year-to-date and “cloud delivered as a service [is] up 80 percent year-to-date with a third-quarter annual run rate of $3.1 billion,” according to IBM’s earning report. As IBM stated in the report, “While we did not produce the results we expected to achieve, we again performed well in our strategic growth areas – cloud, data and analytics, security, social and mobile – where we continue to shift our business.”

After 10 quarters of falling revenue, that has to at least be encouraging. They are making money and showing growth in those areas where they are trying to make this transformation, but in today’s world where the cloud levels the playing field, it means it’s harder to make those huge markups they once had selling hardware that made IBM such a wealthy company. The nature of the cloud is such that it drives down prices and puts the customer in control and that’s not necessarily a comfortable place for a company like IBM.

And IBM is still suffering as it tries to extricate itself from its older hardware businesses. Just this week it had to pay Globalfoundries $1.5B and a valuable patent cache to take its Power processor manufacturing business. It’s not every day a sale involves the seller paying the buyer a substantial amount of money, but  IBM needs these chips for its continuing mainframe business and for its growing Watson business –and according to an IBM spokesperson, the chip business generated a significant loss. Perhaps paying another company to continue making these chips was the best deal they could make. The deal also resulted in a one-time charge of $4.7B.

As it deals with this transformational overlap, IBM and its fellow enterprise technology giants have to be wondering just what it takes to succeed in this brave new world because it’s clear that transforming in this fashion is not going to be easy for any of them and they all face a similar set of problems. All of these companies need to remember that while the cloud offers a path to the next generation of computing, it might not give them the huge earnings they have been used to in the past and that could be the toughest lesson of all.

More TechCrunch


After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets

Featured Article

Two Santa Cruz students uncover security bug that could let millions do their laundry for free

CSC ServiceWorks provides laundry machines to thousands of residential homes and universities, but the company ignored requests to fix a security bug.

13 hours ago
Two Santa Cruz students uncover security bug that could let millions do their laundry for free

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

TechCrunch Disrupt 2024 is just around the corner, and the buzz is palpable. But what if we told you there’s a chance for you to not just attend, but also…

Harness the TechCrunch Effect: Host a Side Event at Disrupt 2024

Decks are all about telling a compelling story and Goodcarbon does a good job on that front. But there’s important information missing too.

Pitch Deck Teardown: Goodcarbon’s $5.5M seed deck

Slack is making it difficult for its customers if they want the company to stop using its data for model training.

Slack under attack over sneaky AI training policy

A Texas-based company that provides health insurance and benefit plans disclosed a data breach affecting almost 2.5 million people, some of whom had their Social Security number stolen. WebTPA said…

Healthcare company WebTPA discloses breach affecting 2.5 million people

Featured Article

Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Microsoft won’t be facing antitrust scrutiny in the U.K. over its recent investment into French AI startup Mistral AI.

15 hours ago
Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Ember has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts.

Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK

Kudos uses AI to figure out consumer spending habits so it can then provide more personalized financial advice, like maximizing rewards and utilizing credit effectively.

Kudos lands $10M for an AI smart wallet that picks the best credit card for purchases

The EU’s warning comes after Microsoft failed to respond to a legally binding request for information that focused on its generative AI tools.

EU warns Microsoft it could be fined billions over missing GenAI risk info

The prospects for troubled banking-as-a-service startup Synapse have gone from bad to worse this week after a United States Trustee filed an emergency motion on Wednesday.  The trustee is asking…

A US Trustee wants troubled fintech Synapse to be liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

U.K.-based Seraphim Space is spinning up its 13th accelerator program, with nine participating companies working on a range of tech from propulsion to in-space manufacturing and space situational awareness. The…

Seraphim’s latest space accelerator welcomes nine companies

OpenAI has reached a deal with Reddit to use the social news site’s data for training AI models. In a blog post on OpenAI’s press relations site, the company said…

OpenAI inks deal to train AI on Reddit data

X users will now be able to discover posts from new Communities that are trending directly from an Explore tab within the section.

X pushes more users to Communities

For Mark Zuckerberg’s 40th birthday, his wife got him a photoshoot. Zuckerberg gives the camera a sly smile as he sits amid a carefully crafted re-creation of his childhood bedroom.…

Mark Zuckerberg’s makeover: Midlife crisis or carefully crafted rebrand?

Strava announced a slew of features, including AI to weed out leaderboard cheats, a new ‘family’ subscription plan, dark mode and more.

Strava taps AI to weed out leaderboard cheats, unveils ‘family’ plan, dark mode and more

We all fall down sometimes. Astronauts are no exception. You need to be in peak physical condition for space travel, but bulky space suits and lower gravity levels can be…

Astronauts fall over. Robotic limbs can help them back up.

Microsoft will launch its custom Cobalt 100 chips to customers as a public preview at its Build conference next week, TechCrunch has learned. In an analyst briefing ahead of Build,…

Microsoft’s custom Cobalt chips will come to Azure next week

What a wild week for transportation news! It was a smorgasbord of news that seemed to touch every sector and theme in transportation.

Tesla keeps cutting jobs and the feds probe Waymo

Sony Music Group has sent letters to more than 700 tech companies and music streaming services to warn them not to use its music to train AI without explicit permission.…

Sony Music warns tech companies over ‘unauthorized’ use of its content to train AI

Winston Chi, Butter’s founder and CEO, told TechCrunch that “most parties, including our investors and us, are making money” from the exit.

GrubMarket buys Butter to give its food distribution tech an AI boost

The investor lawsuit is related to Bolt securing a $30 million personal loan to Ryan Breslow, which was later defaulted on.

Bolt founder Ryan Breslow wants to settle an investor lawsuit by returning $37 million worth of shares

Meta, the parent company of Facebook, launched an enterprise version of the prominent social network in 2015. It always seemed like a stretch for a company built on a consumer…

With the end of Workplace, it’s fair to wonder if Meta was ever serious about the enterprise

X, formerly Twitter, turned TweetDeck into X Pro and pushed it behind a paywall. But there is a new column-based social media tool in town, and it’s from Instagram Threads.…

Meta Threads is testing pinned columns on the web, similar to the old TweetDeck

As part of 2024’s Accessibility Awareness Day, Google is showing off some updates to Android that should be useful to folks with mobility or vision impairments. Project Gameface allows gamers…

Google expands hands-free and eyes-free interfaces on Android