IBM Q4 2013 Takeaway

IBM missed consensus revenue expectations for the eighth straight quarter and its 2015 goal of $20 EPS remains a significant pressure point. IBM was able to take advantage of its higher margin software sales, productivity initiatives, beneficial tax rate, and its share repurchase program to grow net margins. Skepticism continues to grow as IBM relies on these levers to drive margin and EPS improvements while top line revenue growth remains stagnant, suggesting there are underlying business model, leadership, and execution issues.

To reach its 2015 EPS goal, IBM is relying on returning its hardware business back to flat growth, maintaining its current performance from services, and having software continue at its current historical record growth rate. Irrespective of the other levers around productivity initiatives, beneficial tax rates, and the share repurchase program to enhance EPS performance, there is tremendous pressure on IBM to deliver top line revenue growth, especially in software and services. Therefore, we expect continued pressure on all IBM sales teams to drive revenue, with a particular focus in software and services. Well prepared organizations that develop a sound negotiation strategy that maximizes leverage, and remain patient and disciplined in negotiation execution, will be well positioned to achieve highly competitive deals.