Changing IT demands call for bold response

By Liu Tian Source:Global Times Published: 2014-10-23 17:43:02

Hardware, software weigh on industry titans


Illustration: Chen Xia/GT



Monday was a dark day for International Business Machines Corp (IBM). The release of its third quarter financial results that day showed revenues dropping by about 4 percent year-on-year, marking the company's 10th straight quarter of declining earnings. This disappointing figure, combined with weaker-than-expected sales results, sent share prices of the 103-year-old technology company plummeting 7 percent on the day to a three-year low.

IBM is one of the most famous enterprises in modern history. For decades, the company was at the vanguard of the computing revolution with its increasingly sophisticated mainframes, servers and personal computers. It has also developed a well-known reputation as a provider of technology solutions and consulting services for business customers. But Big Blue's glory days are fading into the past thanks to dramatic shifts in the IT industry.

Today, booming demand for cloud-computing and mobile Internet services are weakening sales of expensive hardware and software solutions. In the case of IBM, thinning demand for servers, mainframes and other equipment are making it difficult for the company to achieve its earnings target.

IBM, like many of its peers, is struggling to adapt to current market conditions. IBM said Monday it will hive off its semiconductor unit to contract chipmaker Globalfoundries Inc, paying the company $1.5 billion to take the unit over due to its losses and weaknesses. Prior to this, IBM sold its low-end X86 server business to Chinese computing giant Lenovo in late September.

While these measures may please Wall Street analysts and placate anxious investors temporarily, they will contribute little to improving IBM's core competitiveness.

To achieve long-term growth in a rapidly evolving market, the company has to accelerate its push into high-margin areas, such as cloud computing, mobile business and security. Directing more of its resources into these areas will help IBM stave off weakness in traditional market segments. Such steps should be taken quickly, since rising demand in these areas hasn't gone unnoticed by IBM's peers. Intel, HP and Dell are all said to be quickening their pace into the cloud-computing area as hardware and software sales decelerate across the industry.

But even as the world's leading tech giants seem to acknowledge the necessity of making changes, they nevertheless seem determined to protection their advantages in the traditional hardware and software sectors. Cloud computing is clearly a threat to these sectors, which once accounted for the vast bulk of the computing industry's profits. Right now, it seems many companies want to have it both ways by building advantages in new areas without sacrificing their positions in hardware and software.

Achieving balance between emerging and traditional areas will be difficult. These days, many up-and-coming businesses are focusing exclusively on cloud computing and other areas without worrying about establishing themselves in older, low-growth fields. Indeed, more and more companies are turning to competitive cloud-computing service providers Rackspace, Salesforce, NetSuite and Workday.

In the unsentimental global technology market, few will be willing to wait for aging companies to catch up with fast-changing trends. Any hesitation may see today's giants lose opportunities in burgeoning areas. Technology companies have to be brave enough to ease their grasp on traditional advantages and actively take part in building new markets. Only those who can adapt quickly will thrive into the future.

The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn

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