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IBM hit by profit falls as it shifts to a cloud-based strategy

Mon 20 Oct 2014

IBM has reported significant profit losses which it links directly to a recent shift from hardware to a cloud, analytics and mobile-based strategy.

The global tech giant announced today that its profit and revenue had slumped over the third quarter. IBM explained the financial difficulty as stemming from an imbalance between a slow growing cloud market and fast declining hardware sales.

“We are disappointed in our performance. We saw a marked slowdown in September in client buying behaviour, and our results also point to the unprecedented pace of change in our industry,” said CEO Ginni Rometty.

The results from the third quarter revealed a net income of $3.5bn, as opposed to $4.1bn in the same period of 2013 – equalling a 17% decline. Total revenue also decreased by 4% to $22.4bn.

Despite its comparatively slow growth, IBM identified its strategic growth areas of cloud, analytics, social and mobile, as performing well. The company did not release figures for these segments. Although positive growth has been forecast for these sectors, currently they are not growing at a fast enough rate to soften the shortfalls in other areas.

In an attempt to sharpen its profits, IBM also plans to offload its loss-making chip manufacturing branch to GlobalFoundries, an Abu Dhabi-based sovereign wealth fund. The company has agreed to pay $1.5bn to shed the manufacturing division in a move to avoid the loss of billions more in capital spending needed to redeem its chip-making arm.

Rometty said the disposal of the unprofitable business would allow a “focus on fundamental semiconductor and material science research, development capabilities and commitment to delivering future semiconductor technologies.”

According to market analyst Daniel Ives, “IBM needs to find success and growth in the cloud through organic and acquisitive means […] otherwise there could be some darker days ahead for the tech giant.”

IBM shares dropped 7% to $169.30 in pre-market trading today.


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