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  1. #1
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    [EN] IBM is in a fight to keep up with big spending rivals in the cloud

    Richard Waters
    May 24, 2017

    If Wall Street thought IBM was through the worst of its transition to the cloud, it has had to think again. Five years into a fundamental recasting of its business, Big Blue has a fight on its hands — and some of the biggest and richest companies on the planet are gunning for its market.

    The intensifying battle was on Warren Buffett’s mind earlier this month when he pointed to IBM’s “big strong competitors” as the reason his Berkshire Hathaway had cut its holding in the technology company. That followed the news that IBM’s profit margins suffered an unexpected squeeze in the first quarter, feeding worries among investors that its old-line technology and IT services businesses — which still account for more than half its revenues — are coming under greater pressure.

    IBM’s revenue declines stretch to 20 consecutive quarters, and financial analysts have been pushing back expectations of when it will finally return to growth. Hopes that it was through the worst of its adjustment for the cloud had prompted a 50 per cent rebound in its stock. But over the past three months, it has given up half of those gains.

    At the heart of IBM’s quandary is the rise of the so-called “public cloud” — a new computing architecture that makes the most efficient use of centralised hardware resources to lower costs and increase flexibility.

    Already a distant third to Amazon and Microsoft in this market, IBM is set to fall further behind before the end of 2017, according to estimates by technology research firm IDC. Google, though still smaller, saw its revenues jump by 93 per cent in the second half of last year, compared with only 21 per cent at IBM.

    When it comes to the “mega cloud platforms” that are becoming dominant in this market, only four global players — alongside Alibaba inside China — seem likely to survive, says Frank Gens, an IDC analyst. In a market where massive scale counts, that puts IBM uncomfortably close to the borderline.

    The need to protect the revenues from its traditional IT business leaves IBM little choice but to stay the course: more than 40 per cent of its revenues are exposed to competition from public cloud services, according to Steve Milunovich, an analyst at UBS.

    “IBM can’t fail [in the cloud] because it’s so central to everything they do,” says Glenn O’Donnell, an analyst at Forrester Research. “It has to work. But it’s going to be painful for them.”

    The company’s response has been to try to play to its traditional strengths. The big companies and governments that are its main customers want to link the public cloud to their existing IT infrastructure, says David Kenny, IBM’s senior vice-president in charge of IBM’s Watson and cloud platform.

    “They want it connected to their mainframes, they want it connected to their data centres,” he says. “In terms of an enterprise cloud for [these customers], the battle has only just begun.”

    IBM can also claim some home field advantage. Google, for one, struggled for years to sell its services to the kind of big tech buyers that are natural IBM customers before overhauling its cloud computing operations early last year.

    But even if IBM’s so-called “hybrid” cloud is a useful stopgap, analysts regard the fast-growing public cloud as the main battleground where the future will be decided.

    It is “the most strategic” part of the cloud market, says Mr Gens, and the place “where the new software are services are being developed”.

    IBM has been putting the pieces in place for its response, starting with its 2013 acquisition of SoftLayer, which operates cloud data centres.

    Holger Mueller, an analyst at Constellation Research, credits the company with moving faster than its rivals to build a truly global footprint for its cloud services but he adds that it had not been able to turn this into lasting advantage. “They’re always early — that’s the irony of IBM,” he says, pointing out that the risk now is that it will not be able to match the massive scale of companies like Amazon and Google.

    Watson, the heavily marketed “cognitive computing” service, is the “killer app” that IBM hopes will draw big companies to use its cloud platform. “We have hundreds of customers on Watson, running customer service, doing internal discovery, running their supply chains,” says Mr Kenny.

    As more customers commit their corporate data to IBM’s cloud, the company hopes this will give it an advantage in developing greater industry expertise. Mr Kelly says its system has already learned the “data structures” of fields ranging from oncology to oil exploration, giving it a head start in building an “AI for business”.

    Observers carp that IBM has over-promised about Watson’s capabilities, and contend that the technology is best suited mainly to sifting through and identifying useful information in vast bodies of corporate documents rather than tackling the hardest AI problems. “They paint everything with the Watson brush — they should stick to what it does well,” says Mr O’Donnell.

    But he and other analysts credit IBM, which spends nearly $6bn a year on research and development, with having no shortage of cutting edge technology.

    Recent advances include the development of a platform for collecting and analysing data from the internet of things based on technology that IBM assumed when it acquired Mr Kenny’s company, the Weather Company, two years ago. They also note the company’s efforts to make blockchain technology a mainstay of business computing.

    But if IBM has the technology, it has struggled to adapt its business to the simple, self-service approach to delivering cloud services that other companies use. Its business model, by contrast, was built on complexity, with a reliance on using teams of consultants to stitch together its customers’ convoluted IT systems. “It’s a services mentality — they’re a system integrator,” says Mr Mueller.

    Mr Kenny says that much of his effort had been spent on overhauling IBM’s approach to cloud services to make them simpler for developers. Watson, for instance, has been broken down into a series of “microservices”, or smaller elements, each of which can be accessed through an API, or computing interface.

    “We had to create a culture within a culture,” he says, including developing new metrics to track the performance of the cloud business. This has also involved bringing in more workers with what he calls “cloud-native skills” to work alongside “long-term IBMers”. Senior hires include Bob Lord, a former president of AOL responsible for developing a stronger digital distribution channel, and Michelle Peluso, a consumer marketing specialist who was last year named IBM’s first-ever chief marketing officer.

    “It’s now a hearts and minds thing,” says Mr O’Donnell, as IBM tries to shift the perception of its brand and convince developers that it can move as fast — and effectively — as consumer services companies that were born on the internet.

    https://www.ft.com/content/290e2936-...6-25f963e998b2

  2. #2
    WHT-BR Top Member
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    Dec 2010
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    The spending fight to build the cloud

    The company is in a battle to remain a leader in the new era of computing

    Richard Waters
    May 24, 2017

    If Warren Buffett has lost his enthusiasm for IBM, it may have something to do with the fate of one of Wall Street’s most prolific stock buyback programmes.

    In the 10 years up to 2015, IBM ploughed more than $120bn of its free cash into repurchasing its own shares — or some 80 per cent of its entire stock market value at the end of the period.

    But with pressure growing to invest more in the cloud, Ginni Rometty, chief executive, was forced to change course. The buybacks have fallen to an average of $4bn over the past two years as IBM has embarked on a period of investment and acknowledged that it will not meet its previous profit goals.

    Even that may not be enough to keep in the race against rich competitors. IBM’s capital spending, at less than $4bn a year, is dwarfed by the $11bn Google spent in 2106, or the $10bn of Microsoft.

    An alternative approach, according to Mr Gens at IDC, might be to give up on building its own cloud infrastructure and find a way to offer services like Watson running on top of other company’s cloud platforms. That would echo the approach of companies such as SAP, which has forged alliances with all the biggest cloud companies.

    But IBM’s cloud services are tied too closely to the hardware on which they run, says Mr Kenny. As the only traditional US technology company other than Oracle to be set on building and running its own cloud infrastructure, that leaves IBM little choice but to plough ahead.

    https://www.ft.com/content/290e2936-...6-25f963e998b2

  3. #3
    WHT-BR Top Member
    Data de Ingresso
    Dec 2010
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    18,573

    IBM faces credit rating cut from S&P




    Adam Samson
    May 5, 2017


    IBM faced a downgrade to its credit rating from analysts at S&P Global on Friday, just a day after Berkshire Hathaway revealed that it sharply cut its stake in the more than century-old technology company.

    S&P Global reduced its rating to A-plus, from double-A-minus.

    “The downgrade reflects IBM’s transformation with operating declines in recent years as it reinvests and repositions its business to achieve better performance and our expectation that the transition to operating stability will take longer than we had previously forecast,” said S&P analyst John Moore.

    The Armonk, New York-based company has embarked on a plan to move into cloud computing and artificial intelligence amid a deterioration in its legacy businesses. But investors have been losing patience, with sales having now fallen for 20-straight quarters.

    IBM was initially rated in 1979 at triple-A, the highest level, by S&P, but its rating has fluctuated between double-A-minus and A-plus since 1993, according to Bloomberg data.

    The move by S&P on Friday came after Berkshire said it cut its stake in Big Blue by a third. Warren Buffett, the billionaire investor in charge of Berkshire, cited strong competition from rivals for the decision.

    https://www.ft.com/content/acbc51e7-...a-1ad7205517de

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