IBM will dedicate $4 billion in spending this year to the cloud, analytics and mobile technologies, as it struggles with seismic shifts that are changing the computing landscape it once dominated,
In return, by 2018 IBM expects to reap a combined $40 billion in annual revenue from the areas in which it’s investing, which also include social and security, the company said at an annual meeting on Thursday.
It could use the growth. IBM’s sales declined to about $93 billion last year, from just over $98 billion in 2013, thanks to declines in some of its traditional businesses and the sale of two big hardware divisions to Lenovo and GlobalFoundries.
“Much of the decline in revenue has been engineered by us,” IBM CEO Virginia Rometty reportedly said at the meeting. “We restructured the hardware business and it is now less than 10 percent of the company, and we returned that business to profitability.”
Even as cloud computing has brought new flexibility and opportunity to customers, it has also posed a considerable challenge to longstanding technology vendors whose primary revenue resides elsewhere.
Such is the case for IBM, which nevertheless claims to have expanded its cloud-related technology business by 60 percent last year to $7 billion. It has since appointed a new chief to its cloud unit and says its cloud, mobile and analytics efforts will account for more than 40 percent of total revenue in a few years.
Last year, its cloud, analytics, mobile, social and security sales grew 16 percent to $25 billion, accounting for 27 percent of revenue.
On the mobile front, IBM established a partnership with Apple, and more such alliances are on the way, Robert LeBlanc, the new senior vice president for IBM Cloud, recently said.
Its previous investments in these key areas have included $26 billion in big data and analytics, $8 billion in cloud and $1 billion in its Watson cognitive computing system, noted Charles King, principal analyst with Pund-IT.
The four-year, $40 billion return it expects on its new $4 billion investment—which does not appear to include any potential acquisitions—seems achievable, King said.
“The areas IBM is targeting are all acknowledged growth markets, along with being areas where IBM is planning or delivering solutions that are highly differentiated—as in its cloud offerings—or entirely unique, as with Watson,” he said.
The biggest hurdle IBM faces is probably investors’ notoriously short attention span, King added.
“In a market driven largely by quarterly earnings and other short-term measurements, four years might seem to be an eternity,” he said. At the same time, “if investors offer IBM the time and space required to pursue this strategy, I believe they will be rewarded for their patience.”