IBM eyes more Cloud acquisitions to find a path to growth

Future deals will focus on 'as a service' companies, IBM's CFO says

IBM will favour buyouts that strengthen its Cloud services, the company's CFO said, as it looks for ways to expand its business after 11 straight quarters of declining revenue.

"Most of our acquisitions will probably be on an 'as a service' basis, as opposed to an on-premise model," CFO Martin Schroeter said during IBM's quarterly earnings call, in response to a question.

"That's the nature of the market and where we have a lot of opportunity, because we don't play in some of those areas today," he said.

IBM could use the growth. It said revenue for the last quarter declined across all major segments - hardware, software and services. Profits were down as well, though they beat the forecast of financial analysts polled by Thomson Reuters.

IBM sees Cloud services as one of its best chances for growth, as sales of its more traditional products, including mainframes and Unix servers, continue to decline.

Two years ago it bought SoftLayer to help it compete with Amazon Web Services, and last year it bought Cloudant, which provides a database as a service, and Light House Security, another cloud provider. This year, it looks like more cloud deals will be in the works.

Meanwhile, CEO Ginni Rometty has been selling off businesses that produce little or no profit. In October, she announced a plan to sell IBM's chip manufacturing business for $US1.3 billion to Global Foundries, and before that she sold its x86 server business to Lenovo.

So IBM's revenue is shrinking in part by design, but it needs to expand its other, more profitable businesses to compensate for the losses. And that isn't yet happening at a fast enough rate.

Revenue for the quarter ended in December was $US24.1 billion, IBM said, down 12 per cent from a year earlier and less than the $US24.77 billion analysts had expected. Net income was $US5.5 billion, a decline of 11 per cent.

IBM issued a new profit forecast for 2015, predicting between $US15.75 and $US16.50 per share. That's much lower than the $US20 per share IBM had been aiming for until last October, when it dropped the prediction.

It says its growth in future will come from cloud, analytics, mobile, social and security. Those businesses generated more than a quarter of its revenue last quarter, at $US25 billion, Schroeter said, though he didn't explain how he arrived at that number.

James Niccolai covers data centers and general technology news for IDG News Service. Follow James on Twitter at @jniccolai. James's e-mail address is james_niccolai@idg.com

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