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IBM CEO Rometty: 'We Are Not Exiting Hardware'

Stocks in this article: IBM HPQ MSFT EMC

NEW YORK (TheStreet) - Just 6 weeks after clinching a $2.3 billion deal to sell IBM's (IBM) low-end server business to Lenovo, CEO Ginni Rometty vowed to maintain the company's significant hardware presence in her annual letter to shareholders.

The Lenovo deal, which was announced in late January, prompted a flurry of media reports that IBM was looking to sell off other chunks of its hardware, such as its chip making operation.

"Let me be clear-we are not exiting hardware," wrote Rometty, in the letter, which will be released to shareholders tomorrow. "IBM will remain a leader in high-performance and high-end systems, storage and cognitive computing, and we will continue to invest in R&D for advanced semiconductor technology."

Revenue from IBM's Systems and Technology Group was $14.37 billion in 2013, a year-over-year decline of 18.7%, or 18% adjusted for the effects of currency, according to the company's annual report. Big Blue said that this impacted its overall performance. The tech heavyweight, which competes with the likes of HP (HPQ), Microsoft (MSFT) and EMC  (EMC), has been tightening its focus on high-margin areas such as software and services for a number of years.

IBM's 2013 software revenue was $25.93 billion, a year-over-year increase of 1.9%, or 2.9% adjusted for currency, while Global Business Services revenue was $18.4 billion, a return to revenue growth at constant currency. Big Blue's total 2013 revenue was $99.75 billion, down 4.6% from the prior year, or 2.5% adjusted for the effects of currency.

In her letter, Rometty described 2013 as a successful year for IBM, but acknowledged that "our performance did not meet our expectations." The CEO pointed, in particular, to the company's operating pre-tax income, which declined 8% year-over-year, and its overall revenue dip.

"So, while we continue to remix to higher value, we must also address those parts of our business that are holding us back. We have two specific challenges, and we are taking steps to address both," wrote Rometty. "The first involves shifting the IBM hardware business for new realities and opportunities. We are accelerating the move of our Systems product portfolio-in particular, Power and storage-to growth opportunities and to Linux, following the lead of our successful mainframe business."

The server sale to Lenovo is a key part of this effort, according to the IBM chief. "This divestiture is consistent with our continuing strategy of exiting lower margin businesses, such as PCs, hard-disk drives and retail store solutions," she explained.

In the letter, Rometty outlined three strategic imperatives for IBM - making markets by transforming industries and professions with data, remaking enterprise IT infrastructure for the cloud era, and enabling "systems of engagement" for enterprises.

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