IBM Q4 figures indicate painful cloud transition

IBMAnalysts have warned that IBM faces a transformation that could make it a leaner operator – and potentially meaner one for staff.

IBM’s reported on revenue of $22.1 billion for Q4 of 2015, down 9% compared to the same quarter last year, indicate that its cloud and analytics sales growth is failing to offset declines in traditional business. The $4.5 billion earnings on that revenue, however, were better than expected by Wall Street analysts.

Total cloud revenue for the IT vendor and cloud service hybrid was $10.2 billion, but its as-a-service sales were $4.5 billion. According to IBM it has a run rate of $5.3 billion for cloud delivered as a service and its analytics revenue was up 7% on the same period in 2014.

With IBM now generating 35% if its sales income from cloud, analytics, mobile, social and security it’s in the middle of a painful turnaround which has led to a prolonged period of underperformance, according to Wall Street analyst Kulbinder Garcha at Credit Suisse. Large parts of IBM’s traditional business are being cannibalised by the Cloud, warned Garcha. The sales of hardware, operating systems and non cloud services are still a significant part to IBM’s vital functions, said the analyst, since they account for more than 40% of IBM’s business.

As enterprises move to the cloud, there is a danger they will migrate to one of the big three cloud suppliers with IBM still in transition, said analyst Clive Longbottom, service director at Quocirca. However, enterprises may prioritise the value of IBM’s consultancy skills over the lower prices of the top three cloud service providers (AWS, Googe and Azure) according to Longbottom. “I still believe that IBM will remain a major force in the IT world, it just has to make sure it positions and messages itself effectively to its existing customers and to its prospects,” said Longbottom.

There is still a danger for IBM staff as the company enters a stage of metamorphosis. “IBM’s cost of sale for cloud will be lower than its cost of sale for hardware, operating systems and software in the old world, which is good for the company. “However, this will also result in a lot of excess human resource fat in the company,” said Longbottom. “Expect redundancies leading to a far leaner IBM in the future.”