Bloomberg News

IBM’s Rometty Says Company Didn’t Meet Expectations in 2013 (2)

March 10, 2014

Ginni Rometty, chief executive officer of International Business Machines Corp. (IBM:US), said the company fell short of expectations last year and must address its struggling hardware businesses.

“We must acknowledge that while 2013 was an important year of transformation, our performance did not meet our expectations,” Rometty, who is also chairman, said over the weekend in a letter to investors in the company’s annual report. “While we continue to remix to higher value, we must also address those parts of the business that are holding us back.”

IBM has struggled in a shift to the cloud era, where data and information are delivered online instead of being stored onsite. Falling demand for hardware and weak sales in growth markets have dragged down revenue (IBM:US) for the last seven quarters, prompting Rometty to sell assets, fire and furlough workers, buy back shares and cut taxes to help meet profit goals.

The company announced today that Michael Eskew, the former chairman and CEO of United Parcel Service Inc. who has been on the IBM board since 2005, will become IBM’s first presiding director on May 1.

In the newly created position, Eskew will serve as a liaison between the chairman and independent directors and be able to call meetings of independent directors, according to a regulatory filing. The presiding director also will be available to speak with major shareholders (IBM:US), if requested, after discussions with Rometty. Warren Buffett’s Berkshire Hathaway Inc. is IBM’s largest shareholder.

Leadership Structure

Board members “as a whole accepted the recommendation of Mrs. Rometty and believe that this leadership structure will provide the company with the continued benefits of combining the leadership role of chairman and CEO, while also recognizing the unique strengths and capabilities of IBM’s board members,” the company said in the filing.

IBM’s sales fell 5 percent last year, and the stock (IBM:US) was the only decliner in the Dow Jones Industrial Average. That led top executives to forgo annual bonuses and shrink the company’s headcount for the first time in a decade.

With no bonus, Rometty’s 2013 pay, calculated using U.S. Securities and Exchange Commission rules, fell 14 percent from a year earlier to $14 million. On the recommendation of the board’s compensation committee, IBM’s independent directors approved a long-term incentive plan for Rometty of $12.75 million in performance-based stock awards for the period ending in 2016.

“The committee believes Mrs. Rometty performed well in shifting investments into key segments of the portfolio and advancing innovative solutions, creating a strong foundation for transformation in 2014,” the company said.

Maintaining Goal

Even as revenue has tumbled, Rometty reaffirmed IBM’s goal of $20 a share in adjusted earnings by 2015 -- up from $11.67 in 2010, the letter said.

IBM shares fell less than 1 percent to $186.39 at the close in New York.

The CEO said the company will continue shifting its focus to cloud services and data analytics while making changes to its hardware products. The company agreed in January to sell most of its low-end server business for $2.3 billion to Lenovo Group Ltd. (992)

After buying cloud provider SoftLayer Technologies Inc. last year for $2 billion, IBM is integrating existing hardware and data analytics with its services.

IBM will use its Power Systems servers to help deliver its Watson tool through the cloud, the company said last month. The company is spending $1 billion on building a new business group around the technology, which analyzes troves of information and answers questions in plain English.

This follows a $1.2 billion commitment to bolster SoftLayer’s cloud offerings by adding new data centers and an expansion of the services to lure new customers as it faces off with competitors like Amazon.com Inc.

To contact the reporter on this story: Alex Barinka in New York at abarinka2@bloomberg.net

To contact the editors responsible for this story: Sarah Rabil at srabil@bloomberg.net Pierre Paulden, Crayton Harrison, Kevin Miller


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Companies Mentioned

  • IBM
    (International Business Machines Corp)
    • $194.09 USD
    • 3.24
    • 1.67%
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