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IBM’s Shaky Third Quarter

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IBM reported its third quarter fiscal 2014 financial results on October 20 and CEO Ginni Rometty isn’t too happy about the numbers. IBM’s results come on the heels of the company’s divestiture of its silicon fabrication capabilities to Global Foundries, in a deal that will cost IBM $1.5 billion.

For the quarter, IBM reported revenue of $22.4 billion, which is a four percent year-over-year decline. Net income was reported at $3.5 billion, down 17 percent year-over-year.

“Obviously we were disappointed in this quarter,” Ginni Rometty, IBM’s Chairman, President and Chief Executive Officer said during her company’s earnings call.

Martin Schroeter, IBM’s Senior Vice President and CFO, provided some color on the call as to how IBM’s divestiture of its silicon and x86 business units will positively impact IBM moving forward. IBM sold its x86 business to Lenovo in a deal valued at $2.3 billion.

“With Global Foundries operating at scale, we’ll get supply at market-based pricing for the long term and we’ll exit a business that was not only capital intensive, but also a drag on our profit,” Schroeter said. “Clearly, this is the right move for our business for the long term.”

Schroeter also noted that, starting in the fourth quarter this year, IBM will no longer have the System x hardware business. As such the revenue and profit and the related maintenance from IBM’s former x86 business will be at a lower revenue and profit level, reflecting the new relationship.

With x86 gone, IBM’s Power business needs to lead the way. In the third quarter IBM Power revenue declined 12 percent, though Schroeter sees a positive road ahead.

“We have repositioned Power and we introduced scale-out systems based on Power 8 in June, and earlier this month we announced high end Power 8 based enterprise systems,” Schroeter said. “These systems are highly scalable and can handle the most data-intensive mission-critical applications in the industry.”

Rometty emphasized that IBM’s x86 and silicon divestitures give IBM some opportunity to go ahead and simplify the business and remove layers.

“So while make no mistake, our results this quarter were disappointing and we don’t want to minimize that, we have been very clear that the industry is shifting,” Rometty said. “And we have been executing our strategy that moves this company to the future.”

Rometty added that while some things are changing not everything at IBM will change. Overall she emphasized that IBM will continue to shift its business to a higher value.

“We’re going to continue manage this business for the long term and we will continue to deliver significant value to shareholders,” Rometty said. “In the end, I believe these are the principals that are the hallmark of the IBM Company.”

Sean Michael Kerner is a senior editor at Datamation and Follow him on Twitter @TechJournalist

Photo courtesy of Shutterstock.

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