Technology

As Watson Falters, IBM Needs to Replace CEO Rometty

Douglas A. McIntyre

Published: April 19, 2017 6:15 am

Last Updated: January 12, 2020 12:54 pm

International Business Machines Corp. (NYSE: IBM) has failed almost every test a turnaround can fail. Revenue across most of its units dropped. The top line fell for the 20th quarter in a row. The businesses core to its future posted mediocre results. CEO Ginni Rometty has been in her job too long. IBM’s board must know that.

Rometty’s comments are about the same every quarter and do not touch on revenue, which spirals down, or softening margins:

In the first quarter, both the IBM Cloud and our cognitive solutions again grew strongly, which fueled robust performance in our strategic imperatives. In addition, we are developing and bringing to market emerging technologies such as blockchain and quantum, revolutionizing how enterprises will tackle complex business problems in the years ahead.

Revenue for the first quarter fell from $18.7 billion last year to $18.2 billion. Gross margins dropped across all five of IBM’s major divisions, and for the entire company fell from 46.5% to 42.8%. The cost to shrink IBM has gotten expensive.

Most important, the revenue from four of five IBM’s major units fell. In the fifth, Cognitive Solutions, it rose from $4.00 billion to $4.06 billion. IBM’s core expansion was hardly an expansion at all. “Strategic imperatives revenue of $7.8 billion in the quarter, up 12 percent.” Somewhere buried inside these numbers is Watson, IBM’s artificial intelligence flagship brand. IBM continues to refuse to give exact numbers for the initiative, which probably means they are not impressive.

IBM does present a strange set of calculations to demonstrate its attempts to right the company have taken hold:

Cloud revenue of $14.6 billion over the last 12 months
Cloud as-a-Service annual exit run rate of $8.6 billion in the quarter, up 59 percent year to year

“Annual exit run rate” is not a GAAP term and does not mean much. The rate could drop at any time, altering the annual figure. It is an artificial construct that means very little.

In among all the smoke and mirrors about IBM’s progress is a core truth. Watson is not a colossal success. IBM continues to struggle. Rometty needs to be replaced with someone who can do the job.