IBM’s 3Q2014 Earnings Debacle: Our Take and What Was NOT Stated

What is Happening?          

On October 20th IBM announced its 3Q2014 earnings, which were down 4 percent year-over-year and missed analyst consensus EPS by a sizable margin. This is the 10th consecutive quarter of declining earnings at IBM. Not surprisingly, the NYSE reacted quickly to the news of another IBM revenue and profit decline. Most financial and industry analysts focused on the details of the earnings and opined that IBM has been woefully slow to capitalize on the growing popularity of Cloud computing, which is gaining traction across both software and infrastructure IT spending.

More importantly, Saugatuck sees IBM’s earnings announcement as representative of the challenges all traditional IT providers are facing. Unique to IBM, however, was the announcement that IBM would back down from the RoadMap 2015 EPS plan put in place by former CEO Sam Palmisano – which has caused a broad array of financial engineering as the firm has attempted to meet its very aggressive targets, including significant share buybacks.

What the announcement indicated or stated:

  • This earnings announcement was no doubt significant as evidenced by the fact that Ginni Rometty, Chairman, President, and CEO, personally participated in the announcement. This was a first for an IBM CEO.
  • On the earnings call, and in a subsequent CNBC interview, Rometty emphasized that the shortfall was due to an execution failure in the month of September. She reiterated that the core business was solid, in her opinion.
  • At the same time, IBM re-emphasized its commitment to its strategic growth areas of Cloud, analytics, and Watson, and announced that to help focus its efforts it will create a new Cloud division – and will trim staff (eliminate layers of middle management) as it focuses resources on growth areas, and moves to become more agile in response to changing customer requirements.

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Progress Buys UX Tools and Customers: Modernizing the Base

Progress has entered into a definitive agreement to acquire privately-held Telerik AD – a leading provider of application development tools – for $262.5 million. Telerik is headquartered in Sofia, Bulgaria, but has over 200,000 paying developer customers worldwide, including over 450 of the Fortune 500. Telerik tools enable developers to create compelling cross-platform user experiences across Cloud, web, mobile and desktop applications.

Approximately 50 percent of Telerik’s sales are currently generated through a self-service, web-based platform, making it possible for the tools provider to price extremely competitively and still achieve profitability. Telerik’s revenue for the last twelve months was over $60 million, with annual bookings growth of over 20 percent. Progress expects the addition of Telerik to be slightly accretive on a Non-GAAP basis in the first year following the acquisition.

More than 4 million users and 47,000 businesses in over 175 countries run applications on the Progress OpenEdge platform and Continue reading

IBM, the Cloud, SAP, and IT Provider Re-Invention

It’s no secret that IBM’s financial performance has disappointed investors and company leadership. We see part, if not much, of the blame being placed on a perception that IBM has been late in, or unable to, transition to being a Cloud-first provider of IT.

A new Strategic Perspective research note for Saugatuck subscription research clients examines this perception through the lens of the recent IBM-SAP HANA deal, providing insight into how both firms have been reinventing and repositioning themselves to be very competitive with Cloud-based business IT offerings. For example:  Continue reading

Private Cloud: Benefits but Not a Free Lunch

As a result of ongoing discussions with IT managers and providers, Saugatuck has identified the increasing popularity of Private Clouds particularly among large enterprise IT organizations. In a recently published Strategic Perspective, Saugatuck offers guidance to any Enterprise IT organization considering a Private Cloud. Assessments are provided for areas of comparison between Private Clouds and infrastructure virtualization.

Saugatuck characterizes two basic factors to that make Private Cloud attractive to typical enterprise IT organizations: Continue reading

Cloud Security is People!

What is Happening?          

The recent leak of 7 million Dropbox passwords has raised the inevitable blog posts and questions regarding Cloud security. It’s another round of questions including “Can the Cloud be secured?” and “Will advances in security technology protect our data?”

Saugatuck’s take, with apologies to the classic science fiction film “Soylent Green,” is this: ”Cloud security is people!”

While technologically, Cloud-based resources remain more secure than most enterprise data centers, the widespread, boundary-free utilization of Cloud-provided IT and business resources increases the likelihood of human error because it removes traditional boundaries in IT and business. Initiatives such as Cisco’s Intercloud, and similar Cloud aggregation / integration efforts by HP, IBM, Microsoft and others, extend the range and scope of not only Clouds and everything linked to them, but of the number and type of people using, managing, and connecting through them.

When more resources are used by more entities, some of which may be unknown, more of which are removed from any centralized or fixed environment, and many of which are used sometimes in new and innovative ways, the potential risk for security failures increases dramatically because human involvement increases. Technology won’t save us when the people using and managing the technology fail to use and manage it correctly. Continue reading

Large-Enterprise Financials – A Less Scary Path to the Future

Most people are risk-averse. Growing up, my parents certainly were. And it has long been clear that most large-enterprise CFOs are. So it has not been that surprising that the Office of the CFO has been cautious in adopting Cloud-based solutions, regardless as to whether any of their fears are substantially justified or not.

No doubt, pockets of next-gen solution adoption have been occurring for some time throughout Finance, although mostly around the periphery. Cloud players such as Adaptive Insights, Host Analytics and Tidemark are having strong success in the business planning and budgeting space. Niche players such as Avalara and Kyriba are likewise enjoying strong demand in the Sales / Use Tax and Corporate Treasury segments respectfully. And providers of Cloud-based core Accounting / Financials targeting SMBs and mid-market firms have likewise seen some solid success, including firms such as Intacct, Kenandy, FinancialForce and especially NetSuite – as well as newer next-gen versions from Sage, Epicor and Infor, all of whom have been heavily investing in / reinventing their solution sets.

For the largest of enterprises, though, we still haven’t yet seen the explosive growth in core financials anticipated only a couple of years ago. To some degree we have viewed this as a “chicken or the egg” issue – as until the last year or two, large enterprises lacked robust / fully fleshed out / credible financials / accounting offerings to evaluate and choose from.

However, that has been changing – as four options are now available to serve the unique needs of this high-end market segment. NetSuite has been having some success going upmarket with its two-tier financial consolidation play for a couple of years now. Oracle has come to market with its Fusion Financials Cloud Service, and both Workday (see recent Lens360 blog post) and SAP now have much richer and more powerful solutions that can support the needs of the largest of enterprises.

As part of our focused 2014-2015 research program on Cloud Financials, last Continue reading

Renovate or Modernize: A Digital Imperative

The rallying cry for system integrators (SIs) and professional services organizations (PSO) attached to today’s vendors of Cloud and other Digital solutions is “modernization.” It sounds logical to want to bring systems up to date, and there may be multiple motives for a provider to recommend such activity. These align with the three basic forms of modernization services:

  1. Porting to a new system platform,
  2. Upgrading to a new software release,
  3. Renovating the system architecture.

Porting to a new system platform may involve a hardware upgrade (or downgrade), as one possibility, or for another, it may entail moving to a private or public Cloud or to a colocation data center. If the underlying system platform is inefficient or unreliable, the value of this alternative is clear. Porting to a new system platform may also be part of a more complex modernization strategy requiring a new software release or a renovation of the system architecture. Continue reading

Cloud and Mobile Shape a New Vision of Innovation

Recent surveys have shown the increasing importance of Cloud and Mobile technologies in fostering innovation. While these exist within a cluster of mutually supporting technologies, such as Analytics, APIs, and an overall Digital Business context, they deserve a closer look as platform components for a new vision of innovation.

As the need for innovation becomes increasingly acute, and the profitability window continues to shrink, businesses need to look beyond idea sources to the processes supporting innovation and new product development. Cloud and Mobile technologies can play an important supporting role in energizing the traditional gated innovation process. These changes can make innovation more efficient and more effective, bringing some of the simplicity and rapid response that we have seen in Agile software development to the critical process of developing next generation products and services. Continue reading

Progress Exchange 2014: Disruption Fuels Continued Relevance

What is Happening?

Imagine attending a vendor conference where you get just enough exercise, just enough to eat and drink, and learn just what you need for a great blog post. I wrote that line as a tweet, reflecting on the many conferences I’ve attended through the years when you walk miles and miles between sessions, overindulge in food or drink through sheer conviviality and never quite get the core messages the conference sponsors intended, despite very high-gloss keynotes with booming sound tracks. Is this the one, maybe?

It begins well enough with stimulating, but not deafening music, eye-catching and thought-provoking visuals on the theme of innovation, and a video that emphasizes the interconnections that make the information you need immediately available, ah nirvana!

Progress Software CEO Phil Pead kicked off Progress Exchange 14 by commenting on the warm-up video and on the theme of partnership and problem solving through software engineering, and those are the twin uber-themes that wove through the keynotes. The reason behind all of this emphasis on innovation is a business imperative: innovation. Pead’s motif was the unpredictable disruption in the marketplace or the Black Swan that Nassim Taleb made popular in his great business book on the subject. Can you identify your competitor? Or does disruption come from somewhere entirely unexpected? Continue reading

The Curious Incident of the HP Announcement

The immediate fallout from this week’s big #HPbreakup announcement reminds me of one of the great bits of dialogue in the Sherlock Homes story “Silver Blaze.” The scene goes like this:

  • Gregory (Scotland Yard detective): “Is there any other point to which you would wish to draw my attention?”
  • Holmes: “To the curious incident of the dog in the night-time.”
  • Gregory: “The dog did nothing in the night-time.”
  • Holmes: “That was the curious incident.”

In short, while something important and influential happened, the dog gave no alarm. It provided an extremely important clue in the case.

As I write this, we are more than one business day after founding titan of the IT industry HP announced that it would split itself into two separate, but related, provider firms. Each will deliver $50B-plus in annual revenues; each will be publically traded; each will address a large segment of a rapidly-shifting IT marketplace.

Tens of thousands of employees are being directly affected. Thousands if not tens of thousands of channel partners, developers, and other ecosystem members will be affected; as will millions of users within thousands of customer firms.

Yet, after a flurry of blog posts and business news articles immediately before and after the announcement, there is significant quiet in the industry. One telling factor: HP is not listed among the top ten topics in either Google Business or Technology Continue reading