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IBM's Rometty defends bumpy financial ride as company shifts strategy

Joab Jackson | Oct. 21, 2014
In a call with investors, IBM CEO Ginni Rometty vigorously defended IBM's pursuit of emerging high-growth markets.

IBM CEO Ginni Rometty is moving quickly to quell concerns about the company's sinking earnings and defend a deal to pay more than a billion dollars to hand off its money-losing microelectronics business to GlobalFoundries.

In a conference call held Monday after IBM issued its earnings report, Rometty firmly asserted that the dip in earnings as well as the chip-business deal were necessary for the company to make bold moves to stay current in a tumultuous time of change in the IT industry.

"Make no mistakes, our results in this quarter were disappointing and we don't want to minimize that," she said. "But we have been very clear that this industry is shifting and we have been executing a strategy that moves this company to the future. We are reinventing and managing this company for the long term ... I absolutely convinced we are over the right targets."

IBM announced Monday that it was paying Global Foundries to take over its semiconductor manufacturing business.

Although it might seem shocking IBM would pay to get rid of a business unit that brings in US$7 billion in revenue, that money was "empty calories" for IBM, Rometty said. It produced little in the way of profit and, in fiscal 2013, actually lost approximately $700 million.

The move to hand off semiconductor manufacturing was more about strategy than specific yearly losses, she said. "When I think about revenue, I think about moving us first and foremost to higher value," Rometty said.

The semiconductor manufacturing business is one that requires large amount of capital, and will require even more in the future as wafer production grows more expensive and intricate. "That is someone else's business," Rometty said. The company has "no apologies for divesting anything that is not high value, not core. We need to deploy that capital to other things," Rometty said.

IBM will still continue to invest heavily in semiconductors -- it has pledged $3 billion in research in this area -- but will license out the technologies rather than build them in house.

Beyond the financial confusion stirred up by the GlobalFoundries deal, the third quarter financial results from the IBM, ending in September, showed the company struggling to increase its business overall.

Third-quarter net income for the company came to $3.5 billion, 17 percent lower than the $4.1 billion for the same quarter a year prior. Revenue slumped year-on-year as well, down 4 percent to $22.4 billion. Rometty attributed these numbers to a temporary but significant slowdown in client buying behavior.

The IT industry is going through "unprecedented change," with the enterprise adoption of cloud and mobile technologies, social media, data and analysis, and a greater emphasis on security, Rometty said.

 

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