IBM says bye-bye to hardware and hello to the cloud

First PCs, then servers, now chips are being thrown overboard. IBM is going through its biggest shakeup in years, as it pivots from hardware to the cloud

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Bye-bye, Mr. Chips

IBM's apparent decision to sell off its chip manufacturing business isn't nearly as surprising as some pundits seemed think. It makes sense in the context of IBM's overall shift away from hardware, and it also reflects the ability of IBM to get the advanced chips it needs for its systems business.

"IBM never really wanted to be in the semiconductor business," says Nathan Brookwood, a principal analyst at Insight 64. "It realized decades ago that it had to have a semiconductor business to be competitive in mainframes. But at that time, there wasn't much of a foundry industry, and what there was of it, was not very advanced." IBM built its own, and it made significant advances over the years to stay competitive.

But in recent years, IBM has worked closely with Global Foundries, a chipmaker spun off by AMD, and it seems confident that Global can meet its needs, says Brookwood. Simply put, why should IBM build at great expense when it can rent the capacity it needs?

Some analysts fret that selling off its foundry business would hurt IBM's ability to develop the advanced chips it needs for projects like Watson and other supercomputers. But the company has large and capable groups doing research around the Power platform and the like, and those groups would probably stay with IBM, adds Brookwood.

More cloud, fewer people?

IBM is quite open about its pivot away from hardware. But it's much less open about what that may mean for employees. In a blog post kicking off the cloud campaign titled "Rethinking IBM: The company as a service," IBM Senior Vice President Robert LeBlanc acknowledged the cultural shift, saying:

Like other long-successful companies, we have to change our existing mindset and adapt to a fast-changing environment. IBM started off as a tabulating machine company before becoming a leader in programmable computing, and, later, bringing the personal computer to the enterprise and helping corporations capitalize on the Internet. And we're making the transition again.

In an interview with the New York Times, LeBlanc said, "The model is different in the cloud. It is a little more self-service. I don't need as much SGA." That's ominous. SGA -- sales, general business, and administrative costs -- usually includes personnel. Given Wall Street's unhappiness with IBM's overall financial performance, layoffs, or at least a reduction in the work force by other means, could well be coming.

After the last disappointing quarter, CEO Virginia Rometty and other top IBM execs said they will forgo their bonuses, a gesture designed to show Wall Street a degree of seriousness and to tell employees that they are willing to make -- as well as demand -- sacrifices.

That probably won't go down very well for people who get fired, but IBM is executing a very sharp turn. Everybody had better hold on very tight.

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This article, "IBM says bye-bye to hardware and hello to the cloud," was originally published by Read more of Bill Snyder's Tech's Bottom Line blog and follow the latest technology business developments at For the latest business technology news, follow on Twitter.

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