IBM’s top executives are holding their annual meeting with Wall Street analysts on Thursday, and it’s a skeptical crowd.
The technology giant has sputtered recently with disappointing sales and profits. Last fall, IBM abandoned its long-held target of generating earnings of $20 a share this year, while its fourth-quarter profits and sales declined.
At the analysts’ meeting, IBM is presenting the case for optimism that it is on the road to achieving a long-term financial model of low single-digit growth in revenue and high single-digit growth in profits. The company has not said when the long term will become the present, but it won’t be this year.
What will happen this year is an acceleration of its investment in businesses it is betting on for future growth. An additional $4 billion in spending will be shifted into cloud computing, data analytics, security and mobile and social apps for corporate customers.
In a brief preview before the analysts’ meeting began on Thursday, Virginia Rometty, IBM’s chief executive, and Martin Schroeter, the chief financial officer, said revenue from these so-called strategic growth initiatives is forecast to reach $40 billion by 2018, or more than 40 percent of the company. In 2014, these growth businesses generated revenue of $25 billion, or 27 percent of total sales, and grew by 16 percent.
The two largest businesses earmarked for extra investment and growth are data-analysis software and services, which delivered revenue last year of $17 billion, up 7 percent; and cloud computing, which grew by 60 percent to $7 billion.
The new businesses are making encouraging progress. But analysts question whether they will grow fast enough to offset the contraction in IBM’s old-line hardware, software and services offerings. In a report on Tuesday, A.M. Sacconaghi, an analyst for Bernstein Research, wrote that the central uncertainty about IBM is “not just how fast its growth businesses are growing, but rather how fast its remaining core businesses might decline.”
IBM’s growth initiatives, Mr. Sacconaghi noted, have been expanding for some time, but not enough to halt a persistent erosion in the company’s overall revenue.
But IBM’s Mr. Schroeter pointed out that it has been shedding businesses with lower profit margins in recent years. In 2014 alone, IBM announced or completed the sell-off of businesses that accounted for $7 billion in yearly revenue, including its chip-manufacturing operation and its division making smaller server computers. “This is an engineered decline as much as it is caused by external forces,” Mr. Schroeter said.
In 2015, he said, IBM is facing a strong drag on revenue from the completion of business divestments and the currency impact of a stronger dollar. Most of the company’s business is abroad, so the value of sales overseas shrinks when translated into dollars for financial reporting. The effect of both factors, Mr. Schroeter said, is expected to reduce year-to-year revenue by 10 percent, but does not reflect any failure in IBM’s strategy or management.
At the analysts’ meeting, Ms. Rometty said, the company’s presentation would focus on three themes: that IBM defines itself as a “high-value innovation company,” its strategic transition is progressing, and it is on its way to achieving its long-term target for earnings and revenue growth.
Helped by its large research arm and consulting unit, Ms. Rometty said, IBM is not just selling technology, but how to use its data-science, cloud and mobile offerings to change work practices and achieve competitive advantage. That is the “high-value” payoff for its corporate customers, she said, which also should command higher profit margins.
IBM’s growth, she added, will increasingly come from partnerships and opening up its technology for others to use. For example, the company has opened its Watson artificial intelligence software to outside software developers to write apps that run on Watson, as if it were an operating system. IBM has also forged a partnership with Apple to jointly develop mobile apps for business, and another with Twitter to mine its social network data for marketing and sales insights.
Such initiatives, Ms. Rometty said, are becoming “a very important part of our growth strategy.”