Martin Schroeter, IBM's (IBM, Financial) chief financial officer, spoke at the Citi 2015 Global Technology Conference on Sept. 9. IBM is one of the largest companies in the Dow Jones Industrial Average with a total market cap of $142.1 billion. The company’s main focus in the industry is on enterprise information technology and providing clients with solutions around their enterprise IT programs. At the conference, Schroeter gave his perspective on three main things that enterprise IT is focused on in the current market environment, and also provided his insight on how IBM is positioning its business to meet the growing demand in these areas.
Three Main Things Driving Enterprise IT
In the current environment, Schroeter feels that there are three main things driving enterprise IT. First is data analytics, a substantial part of the analysis and decision making process for large corporations. Warehousing and developing systems to analyze large volumes of data is of utmost concern to IBM’s clients and as a result is a central part of the business focus for IBM.
“The idea of big data and data as a new natural resource is driving a shift in the enterprise and a shift in the way we’re allocating our resources,” said Schroeter.
Cloud systems is the second area of enterprise IT focus from Schroeter’s perspective. Schroeter says IBM is focusing on various models of cloud building which can include a public cloud or private cloud. In cloud, IBM can also help clients leverage all of their current infrastructure through a hybrid cloud or separately build their cloud infrastructure in a full cloud mode.
Third, Schroeter notes in his discussion that systems of engagement are also a key focus for enterprise IT right now. Systems of engagement allow businesses to capitalize on the Internet of Things when marketing to and analyzing their customers.
Lastly, Schroeter adds the overarching need for security solutions that protect all of these system capabilities for companies. According to Schroeter, security solutions are important because they not only protect companies from business interruption and fraud, but also protect a company’s brand.
IBM’s Growth and Innovation in the Current Enterprise IT Market
In the current market, Schroeter highlighted some of the key innovations that IBM is working on to help develop leading solutions in the three areas most relevant to enterprise IT right now. Of utmost importance for IBM is its Watson product. Watson is a cognitive computing system that can analyze data on a more comprehensive level thus providing for data infrastructure builds and added capabilities for analyzing data more comprehensively.
A second focus for IBM currently is its Bluemix product. Bluemix is helping IBM to lead in cloud and cloud infrastructure development. The system is designed as a middle layer for the cloud helping to ensure processing functionality throughout all systems incorporated on the cloud.
Outlook for the Third Quarter
In the third quarter earnings results which are tentatively scheduled for Oct. 19, investors can expect to see more revenue growth from data analytics and a boost in Global Business Services revenue from increased signings.
In the second quarter, IBM showed impressive sequential quarter growth with increased sales revenue across all of its business segments. The sequential quarter growth is highly attributed to the firm’s innovation in data analytics, as Schroeter noted. The firm’s Systems Hardware business segment grew revenue 24% from the previous quarter, with a total gross margin increase of 4%. As demand for data analytics continues, investors can expect to see continued growth in Systems Hardware and the firm’s Global Technology Services business.
In the second quarter, Global Business Services signings were also up substantially for IBM, indicating significant growth expected in the business segment in the near-term. Global Business Services revenue for IBM totaled $4.4 billion in the second quarter with 22 new signings expected to generate total client revenue of $11.6 billion. Given the demand in Global Business Services, the segment is likely to see revenue of approximately $4.6 billion in the third quarter.
Overall, IBM continues to lead in the enterprise IT market. The firm’s ability to meet the demands for data analytics, cloud and systems of engagement have helped it maintain its leading market position in the industry. Additionally, its cash flow levels have allowed for superior capital expenditure capabilities which have helped the firm to further its market share through investment in key enterprise IT growth initiatives.
