The IT services and consulting businesses are going through margin pressures the world over. On Thursday, the IBM stock was battered on Wall Street after it reported losses for the quarter ended March. This was its 20th consecutive quarter-on-quarter loss. The stock fell more than $8 and contributed to a 64-point fall for the Dow Jones Industrial Average.
Analysts say the consulting business has made a lot of money for IBM for 20 years; in fact, consulting accounts for nearly 20 percent of IBM’s $80-billion revenues. According to analysts, the consulting business is just a part of the rot and that there is a large business line problem.
They say IBM has spent more money on buying back shares and paying dividends rather than on innovation. It had till 2015 spent $139 billion on share buybacks and dividend payouts. Analysts add that the company has piled on debt. However, the company has turned things around many times in its long existence.
This quarter, the earnings per share were $2.38. The revenue fell to $18.16 billion, 23 million less than what the stock markets expected.
The fact that IBM is betting on cloud and AI is putting it in direct competition with Microsoft Azure and Amazon Web Services. However, these two companies have been beating IBM to the number of businesses taking to the cloud-based offering on the software, platform, and infrastructure layer. So IBM has to make some crazy moves with its Watson on the cloud to take on Amazon and Microsoft.
A majority of IBM’s revenues come from outsourcing, software, and hardware services.
If one has followed IBM’s stock history, it can be seen that the company always bought back shares and increased the share value before issuing shares to investors again. But the street this time is unforgiving of its innovation and market strategy. Maybe this year Ginni Rometty will announce a major acquisition of a cloud-based business to make its future secure and shareholders happy again.