IBM missed consensus revenue expectations for the tenth consecutive quarter and officially abandoned its $20 EPS goal by 2015. IBM’s failure to generate top-line revenue growth can no longer be mitigated with its higher margin growth initiatives, beneficial tax rates, and share repurchase program to drive EPS improvements. IBM is focused on a deeper strategic transformation, while Wall Street analysts are openly questioning if IBM has the proper strategy, leadership and execution capabilities, and if more serious underlying issues have been created by the short-term actions to achieve the all-consuming $20 EPS goal.
With Ginni Rometty on the earnings call for the first time during her tenure as CEO, IBM tried to put a positive spin on this transformation with placing emphasis on growth in its strategic imperatives that include cloud, analytics, mobile, social, and security. But these initiatives only represent a small part of IBM’s overall business and are not nearly enough to offset the decline in IBM’s much larger traditional business areas. IBM has continued to blame the current business environment and acknowledge sales execution issues for a number of quarters now, while Wall Street analysts are openly questioning why IBM’s competitors are not being as impacted. Clearly, IBM is feeling tremendous pressure to generate revenue which will provide shrewd and smart customers with significant leverage and a unique opportunity to right-size their relationships and commercial constructs.