IBM CEO Rometty Plans Enterprise Deep Dive

NEW YORK (TheStreet) -- In her annual letter to shareholders, IBM (IBM) CEO Ginni Rometty vowed to strengthen the tech giant's links to its vast enterprise customer base, which experts said will be critical as the company shifts focus onto more profitable areas.

With the company's long-term growth strategy coming under intense scrutiny, Rometty clearly wants to focus investor attention onto the more lucrative parts of IBM's arsenal, such as data analytics and cloud.

The three key areas outlined by the IBM chief are: making markets by transforming industries and professions with data, remaking enterprise IT infrastructure for the cloud era, and enabling "systems of engagement" for enterprises.

"I believe IBM's strategic priorities are spot on in that they highlight the business/technological issues with which their enterprise customers are most concerned," wrote Charles King, principal analyst at tech research firm Pund-IT, in an email to TheStreet. "Not surprisingly, the three points-analytics-enabled business, cloud transformation and helping clients transition to next-generation technologies-are also issues IBM is extremely well-positioned to address."

In her letter to shareholders, Rometty said that 57% of companies expect to devote more than a quarter of their IT spending to new systems of engagement, such as social media and mobile devices, by 2016, almost double the level 12 months ago.

To support this trend, the CEO cited IBM's launch of its MobileFirst strategy last year, which aims to streamline businesses' management of employees' mobile devices. Rometty also pointed to IBM's $1.3 billion purchase of recruitment and talent management software specialist Kenexa in 2012 and its dozen acquisitions in the security space.

"Overall, I feel Rometty's priorities for IBM qualify as a balanced mix of visionary goals and practical needs," wrote King, in his email to TheStreet.

"IBM is so large it needs to align to global waves of change," added Stuart Williams, vice president of research at Technology Business Research (TBR), in an email. "To the extent that IBM's very broad strategy can be said to 'cover the waterfront' I'd agree that almost every priority aligns to customer needs. IBM is both making markets and reacting to change, not a bad place to be."

IBM's challenges, however, are in execution, not vision, according to Williams.

In her letter to shareholders, Rometty acknowledged that the company's 2013 performance didn't meet the company's expectations. The CEO pointed, in particular, to IBM's operating pretax income, which declined 8% year over year, and its overall revenue, which slipped 5% to $99.8 billion.

Rometty vowed to address the parts of IBM's business that are holding the company back, explaining that Big Blue is shifting its hardware operations to new opportunities. This involves pushing its Systems products, particularly its Power and storage offerings, towards "growth opportunities" and Linux. The IBM chief also highlighted the company's recent $2.3 billion deal to sell its low-end server business to Lenovo.

This year is certainly shaping up to be a crucial year for IBM. In addition to divesting its x86 server business, IBM has made billion-dollar investments in Watson supercomputer and cloud technology. The Armonk, N.Y.-based company has also announced plans to rebalance its work force.

In her letter, Rometty was adamant that IBM is not exiting hardware, despite a recent flurry of media reports that the company was looking to sell off other parts of its portfolio, such as its chipmaking operation.

"There have been rumors that the company is considering selling its microelectronics division," wrote Pund-IT's King. "However, given how critical that organization is to the company's signature System z mainframe and Power Systems solutions, any sale would have to be to a vendor IBM considered a deeply trusted and able microprocessor partner. By definition, that would be a very small list."

TBR's Williams doesn't expect to see IBM carve off more parts of its business.

"In terms of M&A, I don't see more divestment, perhaps some head count slimming in outsourcing due to increased automation," he wrote.

IBM shares, which have dipped 11.29% over the last 12 months, gained 0.09% to $186.55 in Tuesday trading.

-- Written by James Rogers in New York.

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