Has IBM Lost its Mojo?

In 2010, right after IBM (IBM) bested its $10 earnings-per-share (EPS) goal at $11.52 a share, top brass began talking about hitting a new EPS target of $20 a share by 2015. At first the higher mark looked like a no-brainer, as IBM consistently beat revenue and earnings estimates in 2011 and 2012 with the stock outperforming the market.

But that was then, and this is now. Sticking to the 2015 EPS roadmap seems to have cost IBM dearly: Last week the vendor turned in its eighth consecutive quarter of declining revenue, posting a 4 percent year-over-year slide to $22.5 billion for Q1 with net income tumbling 21 percent to 2.4 billion and EPS falling 15 percent to $2.29 a share.

Has IBM’s roadmap to achieve $20 EPS by 2015 stripped the company of its key assets? Does the vendor’s long quarterly losing streak result from its dogmatic fixation on hitting that target? Bluntly, has IBM lost its mojo?

Maybe so. Some of IBM’s subset numbers for the quarter sag more than the top line figures. Its hardware sales continued to fall of the cliff, this past quarter dipping 23 percent to $2.4 billion. And, its Global Technology Services revenue slid by 1 percent to $9.3 billion. Even in areas where the vendor needs to make hay, it put up tepid growth for the quarter: Software sales rose a meager 2 percent from last year to $5.7 billion, and business services—the unit that houses analytics and cloud sales—also ticked up only 2 percent to $4.5 billion. As in the prior quarter, IBM’s sales in emerging markets continued to erode, slipping by 11 percent.

In the segments IBM is looking to lead it out of the woods, the vendor performed better, but not as well as it needs to do. Analytics sales, for example, climbed some 5 percent, while cloud revenue delivered as a service doubled to $2.3 billion. IBM’s stated 2015 analytics revenue target is $20 billion.

Throughout the losing streak, IBM chief executive Ginni Rometty curiously has stayed with the 2015 EPS plan, explaining this quarter’s pounding by saying the company “continued to take actions to transform parts of the business and to shift aggressively to our strategic growth areas including cloud, Big Data analytics, social, mobile and security. As we move through 2014, we will begin to see the benefits from these actions. Over the long term, they will position us to drive growth and higher value for our clients.”

Still, it’s becoming clearer that while some investors believe IBM will hit the $20 EPS target, the vendor’s long-term health is under fire from others. Instead of driving headlong toward an EPS goal—with the corresponding tagline that IBM has delivered investor value—would the company be better suited in other ways than rightsizing the organization?

By most measures, Rometty’s back is right up against the wall, and given her woeful track record to date—amid growing employee discontent galvanized by the recent large layoffs, framed by a 3 percent slide in share value in the past year—it’s surprising there’s been little to no buzz about replacing her at IBM’s helm, no public leaks of disgruntled shareholders or executive discord. Maybe IBM’s board believes shuffling top management is worse than a two-year losing streak.

IBM still expects full-year 2014 GAAP earnings of at least $17 per share and non-GAAP of at least $18 per share, but at what cost? The growing problem, of course, is that it’s too late now for IBM to back off of the 2015 EPS blueprint. And, the signals that it’s the right road for the vendor to traverse are growing faint.