Top IBM Services Exec: Economic Climate Not Encouraging

A top IBM (IBM) executive, speaking at a BMO Technology and Digital Media conference in New York Dec. 10, said the vendor continues to fight economic headwinds as it struggles to arrest tumbling hardware sales and gain fuel for its cloud services and software businesses.

According to a Bloomberg report, Erich Clementi, IBM Global Technology Services (GTS) senior vice president and a 29-year company veteran, said the vendor is banking on cloud services and software to fill in for flagging hardware sales but the transition remains tenuous.

“The big bet is on cloud and the software that are on top,” Clementi said via Bloomberg, pointing specifically to IBM’s $2 billion July acquisition of cloud storage provider SoftLayer as providing a lever for the vendor to compete with Amazon (AMZN) and Microsoft (MSFT) for cloud services business.

Clementi said the call for technology services—and its high margin returns—“depends on what the economic climate is, and that has not been very encouraging,” adding that demand in Europe is picking up but “North America has been a little more uncertain.”

With IBM slated to report its Q4 2013 earnings Jan. 21, are these early clues to the vendor’s performance for the year-ending period?

Without question, IBM could use a boost. Including its most recent Q3 2013 performance, the vendor has posted six straight quarters of negative revenue growth and seven straight quarters in which it has missed analysts’ revenue expectations.

Cloud computing, as Clementi alluded, seems to be squeezing the vendor’s systems business, with customers holding off spending on hard assets in favor of software and cloud services. For example, in Q3 2013, IBM’s systems revenue fell 19 percent, with its Power line falling 38 percent, System x sliding 18 percent and storage falling 11 percent. Among its hardware platforms, only System z mainframe server products showed some life, with a 6 percent uptick. Services revenue didn’t fare any better than systems, sliding 3 percent for the period.

IBM chief executive Ginni Rometty still is holding fast to IBM’s vow to deliver $20 earnings per share in 2015 and is obviously counting on cloud revenue to fully supplant lost systems sales by then. IBM has said it will hit EPS of at least $15.53 in 2013.

Last June, Rometty appointed Clementi to head IBM’s Cloud Services unit, from which the company expects to mine at least $7 billion in sales by the end of 2014. In its Q3, 2013, IBM said it took in $1 billion in cloud revenue, but only half of that came from cloud services, with the remainder generated by hardware and software sales. Those numbers smelled funny to the SEC, which is investigating.