Both are veteran tech firms that long predate the cloud era. But their performances in recent years couldn't be more different.
Under CEO Satya Nadella, Microsoft (MSFT - Get Report) has pulled off an impressive turnaround that's dazzled investors. Since 2014, when Nadella took over as chief, its share price has increased by about 230%. As of Friday, Apr. 26, its market cap was just shy of $1 trillion, placing it ahead of Apple (AAPL - Get Report) and Amazon (AMZN - Get Report) as the most valuable public company in the world.
IBM (IBM - Get Report) , meanwhile, hasn't had such luck. Since reaching a high of $215 per share in March 2013, its stock has been on a gradual decline to its current level of about $140 per share. It hasn't cracked the $200 mark in almost six years. That period of time included 23 consecutive quarters of shrinking revenue, driven by declines in its legacy businesses.
Investors have been losing patience with IBM's message that its "strategic imperatives" -- a segment that includes cloud, mobile, analytics, security and other initiatives -- are making up for lost ground. IBM dropped that term as of its first-quarter earnings report this week.
"You can change your strategy, your advertising, the money you put into research, but the hardest part is to teach old dogs new tricks," said Allen Adamson, founder of Metaforce and professor at NYU Stern School of Business.
Despite being roughly comparable in size and scale, and having roots in an era driven by computer hardware, there are some important distinctions between Microsoft and IBM that help to explain their current positions, Adamson added.
One is that Microsoft is more fragmented, and characterized in recent years by more "entrepreneurial" segments like Xbox that have helped to energize the broader organization. IBM, by contrast, ditched some of its more non-core segments such as ThinkPad, which was sold to Lenovo in 2004.
Microsoft's splintered lines of business made it easier to evolve from a Windows-obsessed dinosaur to a diversified tech firm with key holdings across public cloud, enterprise software and gaming. It is also a younger and smaller organization than IBM, which was founded over 100 years ago and has more than 350,000 employees worldwide -- a degree of size and entrenchment that makes a reinvention even more challenging.
Nonetheless, shareholders have grown increasingly frustrated with IBM's leadership, in some cases arguing that compensation packages run counter to shareholder interests, or that it's time for Rometty to step aside. In 2017 for example, when IBM's board voted to approve 1.5 million additional options on top of Rometty's pay package, many shareholders slammed what they viewed as a misalignment between executive pay and IBM's performance relative to peers. Rometty is entering her seventh year at the helm of IBM.
"The difference between success and failure is often: Did they start soon enough, and did they have enough runway to execute? You can't turn a big company on a dime, no matter how powerful your strategy is," Adamson added.