Should IBM Sell of its Server Business to Break the Jinx of Sluggish Quarterly Results?


IBM hasn’t shown the kind of performance shareholders expect from it. The company continues to suffer huge losses in its operating system business and equipment.

As the company continues to post declining revenues, analysts have raised a clarion call on whether the company should shun its adventurous streak and instead focus on what it has been doing successfully for so many years.

IBM has been betting big on its cloud business, and as the industry makes a gradual shift to cloud, the company wants to gain a pie of this lucrative market. However, this is easier said than done, as the company continues to bleed money in its traditional business.

While cloud and Strategic Imperatives business account for a significant percentage of the overall revenues of the company, the stronghold of Amazon and Microsoft on this segment means that these businesses will become fiercely competitive in the future.

The Wall Street estimates IBM to earn $13.48 per share in 2017, whereas it is projected that the company may earn $13.80 per share. Experts are of the opinion that IBM pays low taxes around the world, and therefore, it manages to surpass earning estimations.

The declining margins of IBM in the fourth quarter were an indication that although the company had optimistically moved a bit farther from its legacy business, its cloud and AI business were yet to take off on an impressive scale.

Nothing seems to divide opinion as ferociously as discussion on what course of action IBM needs to take. Legendary investors like Warren Buffet have, time and again, appreciated IBM’s foray into cloud and artificial intelligence. However, the recent succession of declining margins has led to calls whether IBM’s legacy business, is indeed, its best bet.

IBM will be reporting its first-quarter results on Tuesday, April 18th. Many analysts are of the opinion that this assumes huge significance, as it can set the tone for the rest of the year. In the last five years, IBM has been granted over 4,000 patents in the AI domain. This could be a telling sign of how things will move in the next few years, as the company continues to focus on next-gen technology.

Brokers are maintaining a ‘hold’ call on the company, with a majority expecting it to settle at nearly $170 by year-end. Whether or not IBM’s forays into cloud, data, and AI pay off remains to be seen.

About the Author

Abhishek Budholiya

Abhishek Budholiya is a tech blogger, digital marketing pro, and has contributed to numerous tech magazines. Currently, as a technology and digital branding consultant, he offers his analysis on the tech market research landscape. His forte is analysing the commercial viability of a new breakthrough, a trait you can see in his writing. When he is not ruminating about the tech world, he can be found playing table tennis or hanging out with his friends.

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