One of the biggest stories last week was Cisco CEO John Chambers’ bold prediction of a dramatically changing IT landscape in the next few years. Speaking during his keynote address at the company’s annual summit, Chambers warned of a dire future for most IT firms:

“You are going to see a brutal, brutal consolidation of the IT industry where out of the top five players, only two or three of us will be meaningful in as quick as five years,” he said. “Out of the private sector companies in this room, 87 percent of you will have a major financial shortfall in the next 15 years, and just 10 percent of you will manage to come back from it.”

While Chamber’s view is debatable, it’s clear enough that these are troubling times for legacy vendors. One company that’s bracing itself for the coming storm is IBM, which was the subject of a lengthy editorial by Nick Summers last week in Bloomberg Businessweek. Summers cites the loss of the CIA cloud contract to Amazon as a prime example of IBM’s failures, which also included eight successive quarters of declining revenues. At the same time, CEO Ginni Rometty has been hamstrung by a promise made by her predecessor Sam Palmisano way back in 2010: that its profits would grow to $20 earnings per share by 2015.

Palmisano’s promise was believable back then. After all, he’d done it before – back in 2007, he’d promised to deliver earnings of $10 per share by 2010, and IBM easily surpassed that, reaching $11.52 EPS. Later, in 2012, IBM made a second promise on its future profitability, publishing its 2015 Road Map strategy that once again predicted it would hit $20 EPS.

But things have gone very, very wrong for the company since then, with falling revenues leading to massive layoffs and the sale of many components of its business. Every indication is that IBM is going to have a tough time achieving its $20 EPS goal.

What’s gone wrong for IBM?

IBM’s big problem is the tech world has moved in an entirely new direction since 2010. Buying habits have changed dramatically. Rather than buy hardware and software to feed their own data centers, companies are renting their tech from cloud companies like Amazon, saving on both cash and the hassles of keeping their machinery up and running.

Back when Pamisano was around, cloud was still an emerging field. Enterprises were curious but cautious, worried about the safety and reliability of it all. Legacy vendors like IBM were dismissive of the new technology too – Palmisano was quoted in 2010 as saying that “Enterprise will have its own unique model. You can’t do what we’re doing in a cloud.”

But just four years later, and we’re living in very different times. Cloud computing has matured, the risks are much lower, and just about every kind of software and application can now be run in the cloud.

So why is it that Rometty is determined to fulfill Palmisano’s old promise? Admittedly shareholders won’t be too pleased if she changes tack, but getting there is going to be a very rocky ride.

As Nick Summers summarizes in his Businessweek article:

“Rometty is by many accounts a smart, vigorous CEO — who turned out to have inherited a far more dire position than she, or much of Wall Street, may have realized.”

IBM didn’t completely miss the cloud, although it did come late. But it’s catching up fast, with cloud revenues rising by 50 percent in the last quarter. Unfortunately this just isn’t fast enough to compensate for the falling revenues in other aspects of its business.

In this respect it’s not being helped by cloud competitors like AWS, Google and Microsoft, who keep slashing prices to win over more customers, making cloud a super-fine margin business.

CEO Ginni Rometty now has a very unenviable task on her hands. Since taking Big Blue’s top job two years ago she’s seen hardware sales crash into a wall, and it’s had a house of cards effect on the rest of its business, because selling fewer servers equates to less hardware and services being sold too.

“Roadkill 2015”

To turn things around, Rometty’s done what most CEOs would do, selling off slower businesses like its x86 server businesses and buying up faster-growing ones. Since 2010 IBM has splashed more than $7 billion on cloud acquisitions, most notably buying SoftLayer last year. It’s also shed jobs like crazy, and one Wall Street analyst has said it could cut another 13,000 workers this year.

This super-aggressive approach has even led to some employees calling the company’s roadmap “Roadkill 2015”.

Nevertheless, Rometty has refused to budge from her promise the company can hit $20 EPS by 2015, even as the number of skeptics piles up. If anything, it seems that she’s determined to hit that goal no matter what the cost, as Summer’s notes:

“To make earnings rise while revenue is falling, Rometty has cut costs, sold business lines, fired workers, figured out ways to lower IBM’s tax rate, bought back shares, and taken on debt. Of the 25 analysts tracked by Bloomberg, nine predict that IBM will indeed hit the $20 target. The question is what type of company Rometty will have left when she gets there.”

If there’s only one certainty, it’s that Rometty probably can’t wait until the day she’s no longer bound by that promise.

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