IBM is a 'zombie company': Analyst

IBM’s profit beat was overshadowed by its fourth straight drop in quarterly revenue, leaving some analysts to wonder if this once-iconic computer company can make itself relevant in the modern age.

Shares of IBM (IBM) rallied 6.5% Thursday as investors cheered the company’s first profit increase in three quarters, and is up nearly 1% percent in midday trading . The stock has climbed more than 32% year-to-date, but is still down 22% in the past five years as it struggles to make inroads in some fast-growing tech sectors.

“You’re talking about a company that missed largely several key pivots in the market. I don’t know if that company is ever going to recover,” Keith Fitz-Gerald, chief investment strategist at Money Map Press, said on Yahoo Finance’s “The First Trade.”

Cloud contest

One of those pivots is the cloud, which allows individuals and corporations to store massive amounts of data without the need to buy and maintain their own systems.


Amazon Web Services has the true first-mover advantage when it comes to the fast growing cloud computing business. Amazon (AMZN) launched AWS in 2006, several years before other major players including Google (GOOG) and Microsoft (MSFT) entered the space.

Yes, IBM’s cloud business is growing, but it pales in comparison to the competition. Its second-quarter cloud revenue climbed 5%. Microsoft’s Azure enjoyed revenue growth of 64% in the company’s fourth quarter of its fiscal year, while AWS jumped more than 41% in its first quarter.

Just this week AT&T inked a reported $2 billion deal with Microsoft to move most of its internal business applications used by its largest unit to Microsoft’s Azure cloud. As part of the agreement, AT&T’s (T) employees will use Azure’s productivity tools and services.

The deal came one day after IBM said that AT&T would move internal applications used by its business services unit to IBM’s Cloud. The exact terms of the agreement were not disclosed, but an IBM spokesperson describes it as a “multi-billion dollar deal.”

Ginni Rometty, IBM chairman, president and CEO, speaks during a keynote address at the 2019 Consumer Electronics Show (CES) in Las Vegas, Nevada, U.S. January 8, 2019. REUTERS/Steve Marcus
Ginni Rometty, IBM chairman, president and CEO, speaks during a keynote address at the 2019 Consumer Electronics Show (CES) in Las Vegas, Nevada, U.S. January 8, 2019. REUTERS/Steve Marcus

Even so, Fitz-Gerald has his doubts. “I think [IBM] is late to the party and they are going to be a dollar short,” he says. “I just simply don’t see them competing with the likes of Amazon or Microsoft, which are rapidly growing into the cloud space as opposed to playing catch-up. I don’t know that it is savable. I think this is a zombie company.”

What about Red Hat?

IBM’s recent acquisition of the software firm Red Hat was supposed to help it gain some much-needed ground in the cloud race. CEO Ginni Rometty even called the buyout a “game changer” when the deal was announced in October.

IBM paid $34 billion for the open source software company, representing a 63% premium. It’s the largest acquisition in IBM’s 100-year history.

Wall Street will be at attention when IBM holds its investor day on Aug. 2. Among other things, the company is expected to unveil its grand plan for the cloud and just how Red Hat fits into that strategy.

Alexis Christoforous is co-anchor of Yahoo Finance’s “The First Trade.” Follow her on Twitter @AlexisTVNews.

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