By Don Clark
Facing an uphill battle to boost revenue, International Business
Machines Corp. is mounting a high-stakes campaign to become a top
player in cloud services. Now that push has a new point man.
Robert LeBlanc, a 33-year Big Blue veteran, was named the leader
of a new dedicated cloud unit in early January. He reports directly
to CEO Virginia Rometty, overseeing cloud-related businesses that
IBM says are generating about $7 billion in annual revenue--a
target the company reached a year earlier than it expected--and
growing at a 60% clip.
That's still only about 7.5% of the $92.8 billion in annual
revenue IBM reported last week. The announcement underscored the
fact that the company's older software and services businesses
remain considerably bigger--and in a tailspin.
"For now, the fall-off in the traditional businesses is dwarfing
IBM's ability to capture new revenue opportunities as the market
shifts," wrote Toni Sacconaghi, an analyst at Sanford C. Bernstein,
in a note following IBM's announcement.
Mr. LeBlanc, 56 years old, acknowledged that IBM must move fast
to make the cloud pay off--something his new position was designed
to help accomplish. "We want to continue to drive for speed," he
said in an interview.
He has taken on big jobs before. In the late 1990s, when the
Internet was picking up steam at many companies, he played a key
role in a heavily advertised "e-business" push that helped connect
traditional back-end systems to the Web.
IBM's cloud push comprises a few dissimilar activities. One is
software as a service, a term that refers to programs that once
would have been installed on customer computers but now are served
up over the Web. Martin Schroeter, IBM's chief financial officer,
said software as a service contributed nearly $3.5 billion the
company's roughly $7 billion in annual revenue from the cloud. The
best-known provider of online software is Salesforce.com Inc.,
whose revenue for the year ending January 31 is projected by
analysts at $5.4 billion.
A large portion of IBM's remaining $3.5 billion cloud revenue
comes from data centers that run customers' own applications, a
business known as infrastructure as a service, based on the $2
billion acquisition of SoftLayer in 2013. By comparison, Amazon.com
Inc.'s competing AWS division may post nearly $6 billion in revenue
in 2015, up from $4.3 billion in 2014, predicts Piper Jaffray
analyst Gene Munster.
Mr. LeBlanc, a senior vice president, previously led a group
that included the cloud-based software offerings--which the company
says number over 100-- as well as leading its conventional software
businesses. He also supervised Bluemix, a set of tools to help
programmers build Web and mobile applications.
Now he also oversees the former SoftLayer unit, which is trying
to differentiate itself with a global network that spans 49 data
centers and counting. In addition to new Softlayer operations in
Frankfurt, Mexico City and Tokyo, IBM in December announced plans
to work with data-center operator Equinix Inc. to offer additional
facilities in Australia, France, Japan, Singapore, the Netherlands
and the US. It has also cut deals with Germany's SAP SE and China's
Tencent Holdings Ltd. to create additional cloud offerings.
Mr. LeBlanc aims to serve customers who want to run applications
on their own computers and outsource others--an arrangement called
a hybrid cloud --while also serving customers in countries like
Germany who want to keep their applications and data nearby because
of security worries and local data sovereignty laws.
"That whole distributed data center model is really playing well
with a lot of clients," Mr. LeBlanc says. "They do worry about
where the application is running."
The company has unleashed a stream of cloud-related
announcements, some with sizeable dollar values. Last week, for
example, IBM said the health-care company Anthem Inc. agreed to pay
nearly $500 million over five years for services that would help
Anthem integrate its apps delivered via the cloud with those run in
its own facilities.
Such deals, however, don't necessarily provide a short-term
boost to IBM's income statement. Where sales of conventional
on-site software are recorded as revenue up front, portions of
revenue from software delivered online and other cloud services are
booked gradually, often on a monthly basis.
Mr. LeBlanc acknowledges that keeping pace with rivals will
require the 103-year-old company to develop new skills. Part of the
solution is expected to come from hiring; he estimates the cloud
group has 1,000 job openings.
Steven Milunovich, an analyst at UBS Securities, says investors
are trying to figure out whether IBM stands to gain more by moving
its customers to the cloud than it will lose in on-site software
licensing. The company does have advantages, he said, particularly
a base of customers who run IBM mainframes or other hardware.
Though IBM's brand in the cloud lags that of some rivals, Mr.
Milunovich said, the company appears to be ahead of some other
competitors. "I would give them at least a solid B for their
efforts," he said.
Write to Don Clark at don.clark@wsj.com
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