What lead to the transformation of IBM (NYSE:IBM)?

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By Chris Hillman on January 27, 2015 Company

International Business Machines Corp.’s (NYSE:IBM) upcoming moves in the next week will establish whether the Big Blue is really contemplating the implementation of Project Chrome or not and whether or not the implementation should raise any concerns?

Robert Cringely, a contributor at Forbes declared last week that the Big Blue is thinking of launching a scheme which is codenamed as Project Chrome. The company will be doing that in an effort to cut down most of its workforce in the current week. Cringely also thinks that this step will be a blood-bath. Last week IBM (NYSE:IBM) released its 4^th quarter results which were not too encouraging.

The company’s revenues continued to decline in the 11^th quarter as well. On top of that, IBM (NYSE:IBM) gave a depressing outlook for the next year which resulted in a decline in the expectations of the analysts. However, despite the fact that the expectations for the future are not too promising, the CFO of Martin Schroeter said that the company is optimistic about its cloud business.

The International Business Machines Corp. (IBM (NYSE:IBM) claims that last year proved to be a breakthrough year for the company’s cloud business. In the Fiscal year 2014, IBM (NYSE:IBM) declared that the company saw a 60% growth in its revenues from the cloud business.

The CEO of IBM (NYSE:IBM), Ginni Rometty said that in the year 2014 the company repositioned its hardware portfolio for bigger value. The company retained a service backlog of $128 billion and gathered solid revenue success across cloud along with analytics, social, mobile as well as security.

Although the company wants to make progress in its cloud business and is attempting to execute a long-term transformation in the direction, it is unable to compete with the three biggest companies that offer cloud services. The three tech giants that have managed to persistently stay at the top of cloud business are Amazon Web Service, Microsoft Windows Azure and Google Web Service.

In order to compete in the market, IBM (NYSE:IBM) has not only increased its data service but has also established around half a million servers. However, the company still has a lot more catching up to do in order to make its place in the market.

Since the beginning of 2012, the company’s shares went down 15% and in just the last year there was a 13% decline seen in IBM (NYSE:IBM)’s shares leading to a loss of $25 billion in value. In the last 52 weeks the company’s stock stayed between the ranges of $150-$199, however a 20% decline was witnessed in the last six months.

The reason behind this decline could be the free falling cash flow. IBM (NYSE:IBM) in an effort to improve its gross took away from business arms that were causing hindrance in the way of profits and hence decreased its overall sales. Ginni Rometty introduced some transformational steps that the company took to bring back the growth of the business.

Previously IBM (NYSE:IBM) in an effort to increase its EPS devoured to share buybacks. However, Rometty gave up the 2015 plan to gather $20 EPS and is now planning to cut down its share buybacks. The company will now send $6.3 billion in share buybacks which is much less than the $13.7 billion that was initially planned.