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IBM has real problems– stock at two year low

IBMs finan­cials for the third quar­ter have failed to impress investors. 

The third quar­ter finan­cials announced by IBM this week high­light­ed the fact that the com­pa­ny is hav­ing real dif­fi­cul­ties with its hard­ware divi­sion that has been adverse­ly affect­ed by the grow­ing uptake of cloud ser­vices. Its own cloud ser­vices are steadi­ly com­ing on stream and should help grow that sec­tor in the com­ing months as more and more com­pa­nies rely on IBM for their ERP cloud resources.

Over­all rev­enue for IBM dropped by $1bn, main­ly account­ed for by the afore­men­tioned drop in hard­ware sales that amount­ed to 17 per­cent.  Over­all rev­enues for the first nine months of this year saw a fall of 4 per­cent at $72.1bn.  This com­pared with rev­enue for the same peri­od last year of $75.2bn.  IBMs soft­ware divi­sion also saw a dis­ap­point­ing result over the last quar­ter with an increase in sales of only 1 percent.

The results were reflect­ed by the price of IBM stock, which fin­ished at a two-year low point after the announce­ment.  IBM has made some big promis­es that investors now appear to be hav­ing con­cerns about.  Per­haps the pro­ject­ed $7bn in cloud rev­enues every year by the year 2015, antic­i­pat­ing div­i­dends of $20 per share by that time, is being met with some skep­ti­cism by investors?

The company’s prob­lems seem to stem from the link between its hard­ware and the rel­a­tive­ly new world of the cloud.  If unable to sev­er this link it is thought that the prob­lems for IBM will grow rather than decrease.  It will be dif­fi­cult to offer com­pa­nies self-ser­vice and on-demand ser­vices while the hard­ware sit­u­a­tion is still in the back­ground.  With IBM tech­nol­o­gy it is dif­fi­cult for a busi­ness to run cloud ser­vices for itself.  It is now an attrac­tive propo­si­tion to do this as a com­pa­ny with a dis­trib­uted sub­struc­ture can avoid the costs of expen­sive IT support.

IBM is of course still expe­ri­enc­ing demand from com­pa­nies to pro­vide their infra­struc­ture along with the oth­er big play­ers in the mar­ket place, such as Dell, HP and Cis­co.  It is in com­bin­ing that infra­struc­ture with the cloud that the prob­lems seem to be arising.

There is lit­tle doubt that IBM will over­come its prob­lems.  Whether that will be in the short term or over a long haul remains to be seen.

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