During Monday’s conference call to discuss the company’s third-quarter financial results, Martin Schroeter, Senior Vice President and CFO, Finance and Enterprise Transformation, IBM said the company will remix its portfolio to target higher customer value areas.
“So we’re putting in place a series of actions to accelerate our transformation,” Schroeter said in a transcript from The Street. “I want to address these right up front. First, we’re continuing to remix to higher value. We just took a bold step in our transformation going fabless with the divestiture of our semiconductor manufacturing business.”
In January IBM announced the sale of its x86 business to Lenovo and earlier this month completed the initial closing.
“This was a $4 billion business for us in 2013 with effectively no annual profit,” Schroeter explained. “With the transaction, IBM and Lenovo have formed a strategic alliance, which includes an agreement for Lenovo to resell selected IBM storage and software products and to ensure a smooth transition for our clients, IBM will provide x86 related maintenance on Lenovo’s behalf. We’ll continue to remix our portfolio by investing in higher value areas and making decisions on businesses that no longer support our high value strategy. Second, we’re implementing changes that make it easier to consume our capabilities and innovations and increase our agility. We’re creating vertically integrated units to address key growth areas. As we did with Watson earlier this year, we’re 
creating a dedicated business unit for cloud and other integrated units to address growth areas like security and smarter commerce. This enables more focused investment and improves our integration and speed in bringing solutions to the market and with our clients.”
Schroeter explained that IBM is taking additional actions to simplify its structure and accelerate productivity to provide greater value and innovation to its clients.
“These include accelerating the use of automation in our data centers and being more aggressive in our use of global delivery skills and intellectual property across our service lines,” he said. “Let me tell you what these actions do for our financial model. In the near term, our revenue will be down, not surprising since the three divestitures this year represent about $7 billion of revenue with pretax losses of about $500 million. So clearly we’ll have improved margin profile. These actions also free up our spend and capital to be reinvested to areas that will accelerate our transformation and these allow us to continue to provide very strong returns to our shareholders through dividends and share repurchases. All of this is consistent with our strategic directions and while there are impacts in the short term, we've improved our position for the longer term.”
IBM will also provide more flexibility to clients in the way they buy company software.
“Specifically, we’re accelerating investments to make our software more directly consumable through digital channels, but we’ll have an end-to-end digital sales and marketing channel, which will improve our reach,” Schroeter explained.
Third-quarter revenue fell 4% (or 2% at constant currency), to $22.4 billion.