The past decade has been a lost decade for International Business Machines (NYSE :). The software and service giant remained irrelevant in the fast-changing technology world, failed to innovate itself and lost ground to newcomers.
During the eight years that Virginia Rometty was at the helm, IBM proved to be dead money for investors. This was the decade when Amazon (NASDAQ :), Microsoft (NASDAQ 🙂 and Netflix (NASDAQ 🙂 all boomed as the demand for computing power and applications soared.
Shares of IBM fell 24% under Rometty, the only US technology company currently valued at $ 100 billion or more to lose value during that period. Shares of the other 16 most valuable tech companies won anywhere from 64% (Qualcomm (NASDAQ :)) to 3,468% (Netflix).
But since her departure early this year, there are signs that Big Blue, as it is sometimes popularly called, is gaining ground. IBM's new management structure has improved the company's long-term growth prospects after many years of declining sales.
Arvind Krishna, who headed the company's cloud and cognitive software division, is now the CEO. Jim Whitehurst, who was CEO of Red Hat, the open-source software giant that acquired IBM for approximately $ 34 billion last year, was named president of the company.
IBM's stock closed 7.4% on Thursday after it divested its managed infrastructure services unit, which is currently part of its global technology division, into a new public company as part of its hybrid cloud strategy.
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Shares of this legacy tech giant, which dominated the early decades of computers with inventions such as the mainframe and later the floppy disk, traded at $ 131.49 at yesterday's close, virtually unchanged for the year.
IBM 1-Year Chart.
Hybrid Cloud Growth Betting
The final step will help focus IBM's focus on hybrid cloud, which has increased group revenues for the past few quarters stimulated.
In a statement, Krishna said this:
"IBM is targeting laser beaming on the $ 1 trillion hybrid cloud opportunity. Customers' purchasing needs for application and infrastructure services are diverse as adoption of our hybrid cloud platform accelerates."
“Now is the right time to create two industry-leading companies focused on what they do best. IBM will focus on its open hybrid cloud platform and AI capabilities. NewCo will be more flexible to design the infrastructure , run and modernize the world's most important organizations. ”
Before the last step, IBM began to profit from the acquisition of Red Had. In July last year, IBM surpassed analyst estimates for second-quarter revenue, with cloud sales helping offset the coronavirus-driven declines in the consulting services business.
Cloud revenues for the company, based in Armonk, New York, were up 30%, offsetting revenue declines in the Global Business Services and Global Technology Services technical support units.
Undoubtedly, these developments are encouraging and could unlock the value of IBM stock. But we remain cautiously optimistic about the company's turnaround as it faces a very tough competitive environment in the cloud computing market, where Microsoft and Amazon have already taken a significant lead.
Getting this right is critical for IBM at a time when its major customers shun IBM hardware and store their data in cloud services provided by rivals. IBM is currently the fifth largest public cloud infrastructure provider, with a market share of less than 2%, according to research firm Gartner.
Bottom Line
When it comes to growth, IBM has certainly disappointed its investors over the past ten years. But after the acquisition of Red Hat, and with new management, we see IBM slowly returning to a growth path. IBM's healthy balance sheet, manageable indebtedness and more than 5% dividend yield make the stock worth considering, especially when the turnaround is accelerating.
