Excerpted from The Wall Street Journal
At an annual meeting with analysts yesterday, IBM announced that it will shift $4 billion in 2015 spending to what it calls the “strategic imperatives” of cloud, analytics, mobile, social and security technologies.
The spending plan prompted IBM Chief Executive Virginia Rometty to set a new financial target for those faster-growth segments: $40 billion in combined annual revenue by 2018, or more than 40% of the company’s expected total revenue.
It is an ambitious goal. Those businesses generated $25 billion in revenue last year, 27% of total revenue, though the trend line has been rising for both figures.
IBM businesses that have posted lower revenue lately include some classes of technology services and software as well as IBM’s remaining lines of big computers. Hardware now accounts for less than 10% of IBM’s total revenue, Ms. Rometty said. The changes have dispensed with businesses that were a drag on earnings, she added.
Among its new priorities, IBM has put particular emphasis on online, or “cloud,” services. It invested $1.2 billion in data centers to augment those it acquired with SoftLayer Technologies in 2013. It also invested $1 billion to accelerate commercialization of its Watson data-analytics technology.
IBM’s plan to invest $4 billion more on strategic initiatives won’t necessarily require spending cuts in other businesses, Ms. Rometty said. In many cases, she said, the company can take advantage of money freed up by operating at higher efficiency.
The company has taken charges for “rebalancing” its workforce—laying off some workers while hiring others with new skills—but doesn’t expect to reduce overall head count.
“It’s not a cost-cutting exercise,” Ms. Rometty said of the company’s actions. “It’s a very healthy remix.”