IBM’s CEO Rometty Failed To Deliver Again In 2016

By Douglas A. McIntyre Updated Jan 12, 4:14PM EST · Published Jan 2, 9:00AM EST

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IBM’s CEO Rometty Failed To Deliver Again In 2016 — © Thinkstock

[cnxvideo id=”509733″ placement=”ros”]The best news IBM (NYSE: IBM) investors got in 2016 is that the stock was up 20%. That did not offset the fact that the tech company made little progress financially, and that its heavily promoted cloud computing initiatives still lag the public corporations which continue to dominate the sector. CEO Virginia Marie “Ginni” Rometty’s turnaround has not materialized

IBM’s share price improvement in 2016 barely wiped out its poor performance over the last two years, and the stock is still down over a five-year period. Over the course of two years, the stock is up 2% to $166, against an improvement of almost 9% in the S&P 500. Over the course of five years, the stock is down 8% while the S&P 500 is up 73%. For the five years, cloud industry leader Amazon’s (NASDAQ: AMZN) share are up 318%, while another sector leader, Microsoft’s (NASDAQ: MSFT) are up 123%.

IBM’s revenue remained in reverse through the first three quarters, a fact management has rarely acknowledge. For the first nine months of 2016, revenue fell to $58.1 billion from $59.7 billion in the same period a year earlier. Net income fell to $7.4 billion from $8.7 billion. IBM is highly likely to have another full year of falling revenue. In 2015, IBM’s revenue was $81.7 billion, down from $107 billion in 2012.

IBM’s move into cloud and analytics has yielded only modest success. Most of the percent improvements in the third quarter were small:

Third-quarter revenues from the company’s strategic imperatives — cloud, analytics, mobility and security — increased 16 percent year to year (up 15 percent adjusting for currency). Cloud revenues (public, private and hybrid) for the quarter increased 44 percent (up 42 percent adjusting for currency). Cloud revenue over the trailing 12 months was $12.7 billion. The annual run rate for cloud as-a-Service revenue — a subset of total cloud revenue — increased to $7.5 billion from $4.5 billion in the third quarter of 2015. Revenues from analytics increased 15 percent (up 14 percent adjusting for currency). Revenues from mobile increased 19 percent and revenues from security increased 11 percent.

IBM will need to do much better than 16% to keep pace with the industry.

Research shows, depending on the source, that IBM trails Amazon, Microsoft, and Alphabet’s (NASDAQ: GOOG) in cloud service market share. In some studies, IBM is slightly ahead of Google. An Synergy Research Group report released in August showed IBM in third place among the four. However, its growth rate year over year for the second quarter was 57% compared to Microsoft’s 100% and Google’s 162%

IBM’s shares are down so much over the last five years that it is nearly impossible it can post positive returns compared to the S&P 500 for future five-year measurements. Its cloud business may be a larger and increased part of its overall revenue, but it is not nearly enough, nor is it growing fast enough, to pull the company out of a long period of awful performance

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.