International Business Machines chief executive officer Ginni Rometty will face a skeptical audience when she speaks to Wall Street analysts tomorrow.
As she’s worked to revamp the company in a shifting technology industry, Rometty has kept herself bound to IBM’s target of at least $18 a share in adjusted earnings this year ― a number that 60 percent of analysts anticipate the company will miss.
After eight consecutive quarters of revenue declines, she must start increasing sales or reduce expenses further to avoid missing the profit goals.
At a daylong conference in New York, Rometty, 56, will probably lay out her plan to use newer technology, such as data analytics and cloud computing, to mount a strong comeback in the coming quarters.
The question is whether those lines of business can expand quickly enough to make up for falling sales in IBM’s hardware unit and in emerging markets like China.
“There has to be intense pressure on her to carry out the execution of the plan,” Bill Kreher, an analyst at Edward Jones& Co., said in an interview from St. Louis. “The concern is largely about the way to get there.” He advises buying the shares and estimates IBM will hit the $18 target.
Mike Fay, an IBM spokesman, declined to comment.
“We’re transitioning to key growth areas and transforming parts of the business,” chief financial officer Martin Schroeter said on a conference call last month. “We’re continuing to make investments in key growth areas such as mobility, security and cloud, and these initiatives are gaining traction but are not yet at scale.”
Those changes need to happen more quickly, and Rometty should consider dropping her earnings targets so she can focus on the transition, said Ben Reitzes, an analyst at Barclays Plc.
“Given the deterioration in earnings quality and revenue challenges, we believe it makes sense for IBM to abandon its road map and change its business model,” he said in a research note.
The company needs to more aggressively shift to providing technology as a service rather than a product, he said. He has the equivalent of a neutral rating and estimates IBM will report adjusted earnings of $17.80 this year, short of its target.
IBM shares are up 2.5 percent this year, in line with the Standard & Poor’s 500 Index. They fell less than 1 percent to $192.19 at the close today in New York. Eight analysts advise buying the stock, while 24 say to hold and three recommend selling.
After a 30-year career at IBM, Rometty stepped into the role of CEO in 2012 amid sweeping changes in the industry. Her company is still adjusting to the upheaval in the technology world.
Technology customers are increasingly storing data and software on cloud-computing networks, rather than on site, limiting their need for servers and mainframes and the IBM consultants needed to install and maintain them. While the company has shifted its focus to cloud services and data analytics to keep up, the effort has not been enough to reinvigorate sales growth. (Bloomberg)
