In an attempt to lay off doubts and fears of a growingly skeptical body of investors, IBM announced that it aims to make $40 billion of its revenue from what it calls "strategic imperatives" by 2018.
These new growth areas defined by IBM include the cloud, data analytics, security, and mobile, four emerging businesses that have grown in importance and revenue as IBM divested its unprofitable traditional hardware units. Last year, these four areas generated $25 billion in revenue, contributing 27 percent of the company's total earnings. That was up from the 13 percent of IBM's revenue generated from these businesses five years ago. If IBM reaches its goals, the four areas will constitute around 44 percent of the $90 billion revenue predicted by analysts in 2018.
At its annual investors' conference in New York on Thursday, IBM top executives told investors and Wall Street analysts that the firm plans to invest a total of $4 billion in the four growth areas to achieve its projected goal of $40 billion in three years. The spending plan, said IBM CEO Virginia Rometty, will not necessarily cut down spending on other businesses. Instead, she said increased efficiency will free up more money for spending.
IBM's workforce also saw a shakeup. The company says it will not reduce head count but has laid off some workers to hire new ones with different skills.
"It's not a cost-cutting exercise," Rometty said. "It's a very healthy remix."
By focusing on its growth areas, Rometty said IBM will be able to deliver "low single-digit" growth in revenue and "high single-digit" growth in operating earnings per share. By looking at IBM's most recent investments and divestitures, Rometty said she has "great confidence that we can and will achieve the long-term model we put out."
For the last 11 quarters, IBM saw its revenue on a continuous decline, while earnings have been a hit-and-miss. IBM also abandoned an earlier prediction posted by then IBM CEO Sam Palmisano to reach a target of $20 in operating earnings per share by 2015. As of January, IBM had a reported operating earnings of $16.53 per share, while last year's revenue dropped from $100 billion the previous year to $93 billion last year.
The revenue declines, said Rometty, was due to the restructuring of IBM's businesses as it sold off divisions that were not generating money. Last year, the firm sold its x86 server business to Lenovo and its semiconductor-manufacturing unit to GlobalFoundries.
"Much of the decline in revenue has been engineered by us," Rometty said. "We restructured the hardware business and it is now less than 10 percent of the company, and we returned that business to profitability."
As part of its new initiatives, IBM is setting its sights closely on its cloud and enterprise applications business, which is now worth about $7 billion. In 2013, IBM spent $2 billion to purchase SoftLayer and is spending another $1.2 billion to build data centers to supplement those acquired with the SoftLayer purchase.
Partnerships are also part of Rometty's plan. She hopes that partnerships similar to the one IBM struck with Apple to develop cloud-based business apps for iOS and another deal made with Softbank to bring its Watson big data technology to Japan will help fuel the company along towards its $40 billion goal.