IBM's Ginni Rometty Just Confessed To A Huge Failure -- And It Might Be The Best Thing For Her

IBM CEO Ginni RomettyFortune ConferencesIBM CEO Ginni Rometty

On Monday, IBM CEO Ginni Rometty quietly but firmly stopped the madness that had been a noose around her neck since she took office.

As part of IBM’s disappointing quarterly earnings, she said the company is not going to hit $US20 earnings per share in 2015, as IBM has been promising for years. This was known internally as Roadmap 2015.

This wasn’t a promise made by Rometty, but by her predecessor, Sam Palmisano, a couple of years before Rometty took the helm in 2012.

Palmisano was doubling down on a tactic that had worked for him. In 2007, he said he was going to deliver earnings of at least $US10 a share by 2010. The company handily beat that number, delivering $US11.52 EPS, and became a Wall Street darling.

So, he turned around and promised $US20 EPS by 2015.

But IBM wasn’t entering an era of coasting on past investments. The tech industry is going through a radical change. All of the big tech companies are in make-it-or-break-it-mode, from HP to Microsoft.

Companies don’t want to buy multi-million-dollar software on contracts anymore, then spend millions more on hardware and consulting services to install it in their own data centres. Especially when so many of those huge projects fail.

They want to rent exactly the software they need when they need it, hosted elsewhere, and rent the equipment to run their software. That’s called cloud computing.

And the leader of the cloud, Amazon keeps cutting its prices as it finds evermore efficient ways to offer cloud services.

As companies shift from buying everything to renting it, IBM’s revenues are taking a beating. New cloud revenue can’t immediately make up for the loss of hardware/software/services revenues. Cloud revenue is recognised slowly over time, not up front when a new contract is signed.

Plus, the biggest cloud providers aren’t buying hardware, software, and services from companies like IBM. They are building their own.

With falling revenue, she tried to grow profits by trimming expenses and laying off workers. She sold business units. IBM even agreed to pay GlobalFoundaries $US1.5 billion to take its money-losing microchip business off its hands.

IBM tripled its debt to buy back billions of dollars of its own shares (at one point, spending $US8.2 billion in a single quarter on repurchases). This to reduce the number of shares and make that $US20 EPS goal.

Ultimately, none of it worked.

So on Monday, Rometty and CFO Martin Schroeter had to tell Wall Street that they would not hit the target.

“Given our third-quarter performance, the actions we’re taking and with only 15 months till the end of 2015, we no longer expect to deliver $US20 operating earnings per share in 2015,” Schroeter said on the quarterly conference call.

Rometty doesn’t usually join these quarterly calls, but she did on Monday because of this news, and the unusual agreement IBM made with GlobalFoundaries.

A huge IBM selloff followed the news, and the shares dropped 7% in heavy volume. Some analysts on the call then questioned if IBM was in a “crises.”

But here’s the thing.

This could really be good news for IBM and Rometty. She’s no longer jumping through hoops to meet an arbitrary EPS number selected by the previous CEO, from a tactic that made sense in 2007.

She is now free to run this company, and implement her own ideas and strategy to start growing revenue, such as the agreement with Apple.

She may still fail. But she didn’t really have a chance until now.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.