IBM CEO Says Tech-Shift Challenges Akin to Financial Crisis

May 14, 2014 4:53 pm ET

(Updates with China sales in sixth paragraph.)

May 14 (Bloomberg) -- International Business Machines Corp. Chief Executive Officer Ginni Rometty said she remains confident in the company’s 2015 profit forecast despite tumbling sales in hardware and in emerging markets like China.

At a meeting with analysts and investors in New York today, Rometty compared the company’s current five-year financial goal to the prior four-year projection, when IBM still reached its earnings forecasts amid a global financial crisis.

“I view both periods somewhat similar with unforecasted things that have happened,” Rometty said. “This time, we didn’t expect, and obviously didn’t plan for, some of the variability in the growth markets as well as our hardware business. You always have things you didn’t plan for.”

IBM is coping with an industrywide shift of technology customers increasingly storing data and software on cloud- computing networks, rather than on site. That’s limited customers’ need for servers and mainframes. While IBM has shifted its focus to cloud services and data analytics to keep up, the effort hasn’t been enough to reinvigorate sales growth.

Lagging demand for IBM’s hardware division continues to drag down revenue, with the unit’s sales falling 23 percent to $2.4 billion in the first quarter. The division recorded a wider pretax loss of $660 million in the period. The company said today that it expects the hardware unit to be profitable again in 2015.

Revenue fell 20 percent in China, where the company today said about half of its sales comes from hardware. Rometty said the slump in emerging markets is because of the natural cycle of demand, though she declined to predict the timing of a recovery.

“I wouldn’t necessarily say that if you know it’s cyclical that you know when it’s going to come back,” she said.

Cloud Computing

IBM has shifted to cloud computing as one of its biggest opportunities for growth. Cloud revenue rose more than 50 percent last quarter, and cloud offerings delivered as a service are now on pace to generate about $2.3 billion a year. That’s still a fraction of IBM’s total $100 billion in annual sales.

IBM, based in Armonk, New York, reaffirmed its forecast for adjusted earnings of $18 a share this year and $20 in 2015. Rometty, who took the helm in 2012, inherited the five-year pledge from former CEO Sam Palmisano.

IBM shares fell 1.8 percent to $188.72 at the close in New York, the lowest since March. The stock has gained 0.6 percent this year, compared with a 2.2 percent gain for the Standard & Poor’s 500 Index.