IBM raised eyebrows at its annual investor meeting with the announcement of plans to spend $4 billion on expanding high-priority business lines this year. The investment comes after eleven consecutive quarters of revenue declines.
IBM ended 2014 about six percent below where it stood 12 months earlier with total sales of $92.8 billion, partially as a result of selling off two hardware divisions in a cost reduction move. But income from cloud services, analytics and the other strategic areas where CEO Virginia Rometty is focusing her growth efforts still only represented 27 percent of the top line.
The new capital infusion is aimed at raising that figure to over forty percent with the ultimate goal of achieving $40 billion in annual revenue from these new areas by 2018. Meeting such an ambitious objective in such a short time frame would pose a formidable challenge even under normal circumstances, but IBM has an unusually tough road ahead.
The company is contending with traditional rivals such as SAP AE and Oracle, which are similarly scrambling to offset falling demand in traditional businesses as well as nimbler startups that have momentum on their sides. The fierce competition adds to the challenge of realizing a return on a ten-figure investment.
IBM has a mixed record on executing such large gambits. Its billion dollar pledge to the Linux movement at the turn of the millennium was an undeniable success, catapulting the operating system to enterprise dominance and providing a valuable boost for server sales in the process. But the similarly-sized commitments that the company has made since then, most of which launched in the last few years under Rometty’s reign, have yet to pan out.
At least not fully. Progress is evident, however. The $1.2 billion that IBM spent on expanding its data center network helped lift cloud revenue an impressive 60 percent to $7 billion in 2014, making the segment one of the few highlights in otherwise bleak year-end earnings report. The other was the “engagement initiatives” category consisting of the company’s mobility, social media, and security lineups, which rose 35 percent.
It’s therefore not hard to see why IBM believes that the infusion of another four billion dollars could increase that momentum enough to meet its ambitious turnaround goals. But Rometty and her team have their work cut out for them in the next three years.