Views: Will IBM be the next Microsoft or Nokia?

Reuters New York | Updated on January 31, 2020

Arvind Krishna, IBM’s incoming chief executive, has a tough task ahead of him. He will replace current boss Virginia Rometty in April, the company announced on Thursday. Shareholders wont miss her: At $121 billion, Big Blues market value has almost halved since she took the reins at the start of 2012. It now has a reputation as a former hardware provider that lost its way when the world moved on. Microsoft’s resurgence under boss Satya Nadella offers the best path ahead.

The two companies were both worth roughly $220 billion when Rometty took charge of IBM. One of her recent strategic moves even echoes those of former Microsoft boss Steve Ballmer. He paid way above the odds for a couple of companies in an attempt to leave behind the company’s stodgy image - before being effectively forced out in 2014. Rometty, meanwhile, splashed out too much in her $34 billion acquisition of Red Hat unveiled in 2018.

Nadella managed to get past Ballmers deals, despite adding a pricey-looking takeover of his own with LinkedIn, and has overseen a largely successful upgrade and expansion of its software while also growing its cloud-computing business, where revenue grew 62 per cent in its most recent quarter. That makes it the main contender to industry leader Amazon. Over the past eight years the value of the company has increased six-fold to $1.3 trillion.

There is plenty that could go wrong, of course. Krishna, who currently leads the cloud division, was instrumental in the Red Hat deal. That was designed to catapult IBM into the cloud business but has yet to show the purchase was worth the price paid. The fate of Finnish telecom company Nokia provides an instrumental lesson on how turnaround attempts can spiral down. It was once, like IBM, a dominant hardware maker before falling on hard times. It sold part of its business to Microsoft one of Ballmers bad deals and shares in the rest now trade at just six per cent of their market high in 2000. Yahoo is another tale of woe. The Internet giants main business lost almost all of its value during a 10-year period before it was sold to Verizon.

Krishna has to push to be in Microsoft’s camp, but he is got his work cut out for him.

Published on January 31, 2020

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