Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

IBM Vs Microsoft and the battle for the corporate cloud business

  • Login to see the comments

  • Be the first to like this

IBM Vs Microsoft and the battle for the corporate cloud business

  1. 1. IBM vs Microsoft andthe battle for the corporate cloudbusiness It's a year since Microsoftovertook IBMin revenue terms, and now the two companies are lining up to fight for the corporatecloud. Arethey two fading giants, or is one of them poised for future success? One yearago, I wrote a blogpost to mark the fact that Microsoft'squarterlyresultswere betterthan IBM's, and that whathad beena tinystart-upwhenitsuppliedIBMwithPCDOS hadovertakena companythat had hada monopolymarketshare of corporate data processingsince the 1930s. Nobody expectedthat. Of course,nowadays,bothcompaniesare tryingtomove fromfadinglegacybusinessesintofast- growingcloud-basedbusinesses.And,like Apple,bothhave beenhitby"headwinds"inthe formof a strengtheningdollar,whichhasdevaluedtheiroverseasearnings. IBM hadalsoset itself upfora fall bysellingitsSystemX(Intel x86server) businesstoLenovo.This boostedIBM's profitswhenthe deal wentthrough,buthurtitsrevenuesoverthe full year. As a result, IBM's revenues fellby8.5 percentto $22.1 billioninitslatestquarter,anditsprofitsfell by 18.6 percentto $4.5 billion.Inthe same quarter,Microsoft'srevenuesfell by2percentto $25.7 billion, but itsprofitsgrewby8 percentto$6.3 billion. Thiswas IBM's 15th straightquarterof revenue declines,andinafter-hourstrading,itssharesfell by4.9 percentto $121.86, the lowestforfive years.After Microsoft'sresults,bycontrast,itssharesjumpedby "more than 8 percentinafter-hourstrading,butthengave backsome of those gains",according to CNBC. In itsfull yearresults,IBM'srevenuesdippedto$81.7bn, a fall of 11.9 percent.Thisisa level IBMfirst achievedin1998, whenMicrosoft'sturnoverwas$15.3bn anda strugglingApple couldonlymanage $5.9bn. For comparison,Microsoft'srevenueswere $88.1bnin calendar2015, while Apple managedan astonishing$235bn. IBM peakedat$107bn in 2011, and looksunlikelytosee thatnumberagain.
  2. 2. Eitherway,IBM's $81.7bn wassome way behindthe $93.6bn that Microsoftachievedinitsfiscal 2015 results,declaredinJune.ThissubstantiatedmyclaimthatMicrosoftreallywasbiggerthanIBM. But the real questionis: Iseverythingis goingto plan? IBM's statedstrategyisto move outof low- marginbusinesses(PCs,servers,printers,etc) andintohigh-marginbusinesses.These are whatIBMcalls its"strategicimperatives":analytics,cloud,mobile,and security. In the statementaboutitsresults,IBMclaimedthat"strategicimperatives"grew by17 percentto $28.9bn in 2015, while "cloudasa service"grew by50 percentto $4.5bn. In otherwords,these terrible resultsdemonstratedIBM'ssuccess. Fine, butI still see problems.First,IBM's"strategicimperatives"are still onlyathirdof the company. Second,Ican't see these "strategicimperatives"inIBM'sresults. The fact is that,in its2015 annual results,everyIBMdivisionshowedadeclineinrevenues.Global TechnologyServices?Down10 percent.Global BusinessServices?Down12percent.SystemsHardware? You'd expectthatdivisiontobe strugglingwithoutx86servers,anditwas downby24 percent. However,Software wasalsodownby10 percent,andthat was supposedtobe growingrapidly. It makessense that"strategicimperatives"businessesare spreadacrossthe company,butif everyIBM divisionisshowingrevenuesindecline,where are these fast-growing"strategicimperatives"makinga meaningful contribution? It promptsthe suspicionthatIBMis mainlycannibalizingitsexistingbusiness,ratherthandeveloping newbusinesses.Indeed,itmaybe worse thanthat, because IBMhas triedtobolsteritsstrategy by buyingroughlyahundredcompanies inthe pastdecade.These include Cognos,whichcost$5bn, Softlayer($2bn),Netezza($1.7bn),Kenexa($1.4bn) andTrusteer($1bn). Obviously,Microsofthasasimilarproblem.However,Microsofttakesthe view thatcompaniescanhave cloudson theirownpremises,andhybridclouds,soitdoesn'treallymatterwhere the hardware is
  3. 3. located.Ithas therefore bundleditsserversoftware intoanew "IntelligentCloud"division.Many customerswill be runningstuff intheirowndatacenters,andsome inMicrosoft's,andtheycan move jobsbetweenthe two,sowhyshouldtheybe counteddifferently? Thisapproach makesMicrosoft'sclouddivisionlookbiggerandmore successful thanitreallyis.Butat leastMicrosoftrunssome veryvisible cloudbusinesses.These includeOffice 365, DynamicsCRM, Skype, Outlookemail,OneDrive,Bing,WindowsStore,CortanaAnalyticsetc.Second,Nadellaclaimsthat Microsoftis "the onlyone in thismarketprovidingSaaS,PaaS,IaaSand hybridcloudat scale".Thisis winningnewbusinessfromplatformsthatMicrosoftdidn'tsupportbefore,suchas Linux. Duringthe conference call followingMicrosoft'sresults,Nadella said:"The enterprisecloudopportunity ismassive,largerthananymarket we have everparticipatedin."Thisistrue.It'salsoone of the most competitive,withrivalsthatinclude Amazon,Google,andIBM. It's a battle that lookslikelytobe wonby price-cutting- ledbyAmazonandGoogle - and bythe abilityto supportcorporate customers - ledby Microsoftand IBM. In that situation,IBMwill have toprovide much betterservicesthanMicrosoftinordertojustifythe highermarginsrequiredbyits"strategic imperatives"mantra.

×