WHEN: Today, Monday, October 20th
WHERE: CNBC's "Squawk on the Street"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with IBM Chairman & CEO Virginia Rometty today on CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET). Video from the interview is available on CNBC.com.
All references must be sourced to CNBC.
SARA EISEN: TOP STORY TODAY, IBM FALLING SHARPLY WEIGHING ON THE DOW. BIG BLUE POSTING EARNINGS THAT BADLY MISSED ESTIMATES. THE TECH GIANT ALSO ANNOUNCING IT WILL PAY GLOBALFOUNDRIES $1.5 BILLION TO TAKE OVER ITS CHIP UNIT. OUR OWN DAVID FABER LIVE AT IBM HQ WITH AN EXCLUSIVE INTERVIEW NOW. DAVID?
DAVID FABER: THANK YOU VERY MUCH, SARA. I AM JOINED BY GINNI ROMETTY, THE CHAIRMAN AND CEO OF IBM. WE ARE IN HERE IN THE COMPANY'S HEADQUARTERS IN ARMONK, NEW YORK. THANK YOU FOR HAVING US.
VIRGINIA ROMETTY: YEAH. THANK YOU FOR JOINING US.
FABER: ON A DIFFICULT DAY FOR THE COMPANY. IN FACT, YOU CHOSE TO JOIN THE CONFERENCE CALL. SOMETHING THAT IS NOT TYPICAL FOR AN IBM CEO TO DO GIVEN WHAT YOU TERM DISAPPOINTING EARNINGS. GINNI, ON THAT CALL TO THE EXTENT I HAD AN OPPORTUNITY TO LISTEN TO IT, THERE ARE SOME WHO ARE CHALLENGING THE NOTION THAT THE TRANSFORMATION THAT YOU HAVE BEEN TRYING TO PUT THIS COMPANY THROUGH OVER THE LAST 2 ½ YEARS IS WORKING. HOW DO YOU TELL THEM IT IS WORKING?
ROMETTY: YES. WELL, FIRST, THANK YOU FOR JOINING US HERE TODAY AS WELL. AND YOU MENTIONED THE EARNINGS CALL. AND IT WAS A UNIQUE MOMENT. AND I THOUGHT IT WAS IMPORTANT I BE THERE BECAUSE THE THIRD QUARTER EARNINGS WERE DISAPPOINTING. THEY WEREN'T WHAT WE HAD EXPECTED. AND WE SAW SOME SLOWDOWNS. WE SAW SOME SLOWDOWNS IN OUR SERVICES BUSINESS AND SERVICES PRODUCTIVITY, IN PARTICULAR, AND IN SOFTWARE. BUT AS WELL AS SLOWDOWN IN THE MONTH OF SEPTEMBER WE'LL TALK ABOUT. BUT MORE IMPORTANTLY, THOUGH, AND THE OTHER REASON I JOINED THE CALL WAS WE HAD ANOTHER ANNOUNCEMENT WHICH WAS ALL ABOUT TAKING THIS COMPANY TO THE FUTURE. AND WHEN YOU SAY IS THIS TRANSFORMATION? WE ARE TRANSFORMING. WE ARE REINVENTING THE COMPANY AND IT IS WORKING. YOU JUST NEED TO LOOK AT THE RESULTS WHICH TO ME THE RESULTS DO SPEAK FOR THEMSELVES. AND WHEN YOU LOOK AT OUR STRATEGIC INITIATIVES, YOU AND I GOT A CHANCE TO TALK ABOUT THIS WHEN WE WERE LAST MET.
FABER: YES.
ROMETTY: AND AGAIN IN THIS QUARTER THEY ACCELERATED. SO AS YOU KNOW, WE'RE RESHAPING THIS COMPANY AROUND ANALYTICS, AROUND CLOUD AND THE TERM I USE ENGAGEMENT. SOCIAL, MOBILE, SECURITY. BUT ALL FOR THE ENTERPRISE. COLLECTIVELY, ALMOST 20% GROWTH. IMPROVED EVERY SINGLE QUARTER AND EVEN INDIVIDUALLY, EACH OF THOSE AREAS. ANALYTICS, WHICH ENDED LAST YEAR AT $16 BILLION, UP IN TOTAL 8%. A VERY LARGE NUMBER. YOU TAKE A LOOK AT CLOUD. GREATER THAN 50% AGAIN. AND THEN SOCIAL, MOBILE, SECURITY, EVERY ONE OF THEM. SO TO ME, THAT'S THE MEASURE. IT'S BOTH THE MEASURE OF THOSE INITIATIVES AS WELL AS HOW WE CONTINUE TO MOVE THE COMPANY TO HIGHER VALUE. AND THAT WAS A SECOND PART OF THE BIG ANNOUNCEMENT TODAY. SO WHILE I DON'T WANT TO MINIMIZE OUR EARNINGS, THIS POINT ABOUT US CONTINUING TO MOVE THIS COMPANY TO HIGHER VALUE IS WHAT IT IS ALL ABOUT. AND THE DIVESTITURE OF OUR SEMI CONDUCTOR BUSINESS TO GLOBALFOUNDRIES IS JUST ONE MORE PIECE OF EVIDENCE OF THAT. AND IN FACT, DAVID, THIS YEAR WE WILL HAVE DIVESTED AND ANNOUNCED ALMOST $7 BILLION OF ANNUAL REVENUE. BUT AS I SAY, IT'S EMPTY CALORIES REVENUE. IT'S REVENUE THAT HAD DECLINING PROFITS.
FABER: RIGHT. AND DID NOT HAVE A BIG MARGIN ASSOCIATED WITH IT AT ALL.
ROMETTY: NO MARGINS.
FABER: ALL THAT BEING SAID, AND TO YOUR FOCUS, OF COURSE, ON YOUR GROWTH BUSINESSES AND THE PARTS OF YOUR REVENUE THAT ARE GROWING MORE QUICKLY, CERTAINLY YOU SAID IT AS WELL, THERE IS DISAPPOINTMENT WITH SOME OF YOUR BIGGER AREAS THAT YOU HAVE RELIED ON AT LEAST TO BE, LET'S CALL IT FLAT IF NOT UP A BIT, IN TERMS OF REVENUES. AND I DID WANT TO ASK ABOUT THAT BECAUSE, YOU KNOW, ON THE CALL YOU MENTIONED EXECUTION IN THE SOFTWARE BUSINESS. SALES EXECUTION, I BELIEVE. BUT YOU DIDN'T EXPLAIN WHAT THE PROBLEM WAS. YOU TALKED ABOUT PRODUCTIVITY IN THE SERVICES BUSINESS NOT BEING AS STRONG AS YOU WOULD HAVE LIKED, BUT AGAIN, YOU DIDN'T ACTUALLY GET AN OPPORTUNITY TO EXPLAIN WELL, WHAT WENT WRONG. SO, WHAT WENT WRONG?
ROMETTY: YES. SO LET ME TAKE EACH ONE IN TURN. SERVICES PRODUCTIVITY, AS WE LOOKED AT IT, THERE WERE A COUPLE OF DYNAMICS. PART OF SERVICES BUSINESSES THAT DOES STANDARD APPLICATION, IMPLEMENTATION, VERY PRICE COMPETITIVE. ANOTHER PIECE OF IT, WHEN WE TALK ABOUT HOW TO AUTOMATE OUR SERVICE DELIVERY, NEEDS TO GO FASTER. AND THEN, ACTUALLY, OUR OUTSOURCING SIGNINGS WERE UP 60%, BUT SOME OF THE TRANSITION TIMES TOOK LONGER. THAT ALL IMPACTS SERVICES PRODUCTIVITY. AND THEN ON SOFTWARE WHAT WE TALKED ABOUT MENTION OF BOTH EXECUTION AND FLEXIBILITY. SO, EXECUTION MEANING CLIENTS NOT READY TO MAKE A DECISION. FLEXIBILITY MEANING WHAT WE FOUND OURSELVES AND ACTUALLY CLIENTS ASKING FOR, OFFERING THEM SOME MORE FLEXIBILITY IN OUR SOFTWARE TO DEPLOY IT FOR NEW WORKLOADS. SOCIAL, MOBILE. SO VERY MUCH A COMMITMENT TO IT, BUT TAKING WHAT IT IS THEY BOUGHT AND SPREADING IT ACROSS SOME OF THESE NEW WORKLOADS. THOSE ARE VERY GOOD SIGNS FOR THE FUTURE, BUT NOT AT THAT MOMENT. AND YOU KNOW, THERE WAS AN UNDERLYING SORT OF FOUNDATION ACROSS BOTH OF THESE. AND PARTICULARLY ON THE SOFTWARE POINT THAT WE HAD MENTIONED WHICH WAS A SLOWDOWN THAT WE SAW IN THE BUSINESS IN SEPTEMBER. CERTAINLY NOT EXPECTED. AND FOR THOSE THAT KNOW OUR BUSINESS WELL, THE TRANSACTION PART OF IBM'S BUSINESS IS SECOND HALF LOADED. AND IT'S ALWAYS THAT LAST MONTH, WEEKS, DAYS, HOURS. AND WE DID SEE A BROAD-BASED SLOWDOWN IN THE MONTH OF SEPTEMBER IN THAT TIME FRAME, WHICH WE CAN TALK ABOUT, BUT I MUST TELL YOU, TIME WILL TELL WHETHER IT'S MACRO OR NOT, BUT I'M TREATING IT AS OPERATIONAL. SO BACK TO THOSE.
FABER: YOU ARE TREATING IT AS THOUGH IT IS AN IBM PROBLEM NOT NECESSARILY ONE SHARED BY YOUR COMPETITORS.
ROMETTY: I AM ABSOLUTELY GOING TO TREAT IT.
FABER: WELL, LET'S GET INTO IT, BECAUSE OF COURSE OUR AUDIENCE CERTAINLY IS VERY MUCH INTERESTED IN WHAT MAY BE SLOWDOWNS. NOW, I WOULD ASSUME IT WAS NOT AS BAD IN THE U.S., BUT TELL ME A BIT. CHINA HAS BEEN A GROWTH MARKET FOR YOU. THAT STOPPED THIS QUARTER. EUROPE WE ALL KNOW HAS BEEN SLOW.
ROMETTY: YES. NOW, CHINA OBVIOUSLY – WELL, LET ME BACK UP BIGGER PICTURE, THEN I WILL JUMP INTO CHINA AND INTO EUROPE. WHAT WE SAW IN THE MONTH OF SEPTEMBER WAS A DECLINE OF FIVE POINTS. AND IF YOU LOOK AROUND THE WORLD, IT WAS LESS OF A DECLINE IN NORTH AMERICA, U.S., TO YOUR POINT. MORE SO IN EUROPE, MORE SO IN THE GROWTH MARKETS. NOW, CHINA ITSELF IS A DECLINE FOR US. IT WAS A DECLINE AS WELL OVER THE LAST COUPLE OF QUARTERS. IT HAS A DIFFERENT DYNAMIC. CHINA IS A BUSINESS THAT'S ALMOST 50% HARDWARE TO US. SO AS WE TRANSITION OUR HARDWARE BUSINESS, WHICH WE HAVE TAKEN A NUMBER OF ACTIONS TO DO, YOU WILL SEE THAT REFLECTED IN CHINA'S RESULTS.
FABER: I WANT TO TALK ABOUT THE SPEED OF THE MARKETPLACE BECAUSE IT'S SOMETHING THAT CAME UP IN YOUR REMARKS, IN THE PRESS RELEASE. AND IT'S SOMETHING ACTUALLY THAT HAS COME UP VERY RECENTLY WHEN I HAVE INTERVIEWED JOHN DONAHOE FROM EBAY AND THE REASONS BEHIND THEIR DECISION TO SPLIT. OR HEWLETT-PACKARD AND MEG WHITMAN AND THE REASON BEHIND THAT DECISION TO SPLIT THE COMPANY. THE SPEED OF THE MARKETPLACE EVERYBODY SAYS, INCLUDING YOURSELF, HAS INCREASED. HOW AT IBM WITH 431,000 EMPLOYEES CAN YOU POSSIBLY BE AGILE ENOUGH TO RESPOND TO THAT INCREASING SPEED AT THE MARKETPLACE IN THESE IMPORTANT GROWTH BUSINESSES?
ROMETTY: YES, THERE IS NO DOUBT THAT THE MARKETPLACE SPEED HAS INCREASED. IN FACT, THIS IDEA THAT THERE ARE THREE SHIFTS CHANGING TECHNOLOGY. I MEAN TECHNOLOGY HAS ALWAYS BEEN AN INDUSTRY THAT CHANGED FREQUENTLY, BUT WITH THESE THREE DIFFERENT SHIFTS ALL AT ONCE, IT IS REALLY CONVERGING AND SIMULTANEOUSLY CAUSING EVEN MORE RAPID. AND SO ONE WAY YOU DO IT IS VERY CLEAR STRATEGY. AND THAT'S WHAT I FEEL WE HAVE. WE HAVE A VERY CLEAR STRATEGY ABOUT HOW TO TAKE THIS COMPANY TO THE FUTURE AND MORE THAN A STRATEGY, A WHOLE LIST OF BOLD ACTIONS WE HAVE TAKEN, ONE AFTER ANOTHER THIS YEAR. AND WHEN YOU'RE CLEAR WITH YOUR WORKFORCE AND YOU ENGAGE THEM, THAT'S HOW YOU MOVE THEM SWIFTLY. AND SO THAT IS REALLY WHAT WE'RE ABOUT, IS MIXING INTO ALL OF THOSE NEW INITIATIVES WHILE OUR CORE BUSINESS WE CONTINUE TO INNOVATE IN IT. AND, AS YOU AND I HAVE TALKED ABOUT, SOME OF THE CORE BUSINESS, WHILE IT'S ESSENTIAL TO MANY BUSINESSES THAT RUN THE WORLD, IT ISN'T NECESSARILY A GROWTH BUSINESS. BUT IN TOTAL, MOVING TO HIGHER VALUE. SO, HOW YOU DO IT IS A CLEAR STRATEGY, BOLD ACTIONS, AND THEN YOU, TODAY ACTUALLY I TOOK MORE ACTIONS TO ACCELERATE IT. AND I THINK THAT'S ACTUALLY IMPORTANT. BECAUSE I THINK WHAT IS HAPPENING IS THE PACE IS MOVING EVEN FASTER. WE THOUGHT IT WAS FAST, IT'S MOVING EVEN FASTER. SO MAKE NO MISTAKE. SO PART OF WHAT WE ARE GOING TO DO TO ACCELERATE EVEN FASTER IN CLOUD, I'M TAKING SEVERAL UNITS ACROSS THE COMPANY, COMBINING THEM, DEDICATING THEM INTO A CLOUD DIVISION. WE ALSO ARE LAUNCHING SEVERAL INTEGRATED VERTICALS. AREAS LIKE SECURITY, AREAS LIKE SMARTER COMMERCE, THEY'RE GROWING GREAT. I'M GOING TO STREAMLINE THEM EVEN MORE, THEY CAN GROW EVEN MORE FASTER WHEN YOU MOVE AROUND AND TAKE OUT SOME OF THE FRICTION. AND THEN WHERE WE HAD SOME OF THE ISSUES YOU JUST ASKED ME ABOUT SOFTWARE AND SERVICES, MORE FLEXIBLE MODELS ON THE SOFTWARE SIDE. SERVICES MORE I.P. AND AUTOMATION, FASTER PACE. AND THEN, ONE MORE CHANGE. AND IT DOES GET TO YOUR HARDEST SPEED AGAIN. BECAUSE I BELIEVE SPEED IS A VERY IMPORTANT PIECE RIGHT NOW. AND WE ARE GOING TO TAKE SOME ACTIONS. PARTLY BECAUSE OBVIOUSLY WE'VE DIVESTED AND WILL BE DIVESTING $7 BILLION OF REVENUE, TAKE ADVANTAGE OF THE STRUCTURING AND REMOVE LAYERS. WHEN YOU REMOVE LAYERS, SIMPLICITY AND SPEED HAPPEN. AND SO THAT'S ANOTHER PIECE OF WHAT IS ADDITIONAL.
FABER: SO IN REMOVING LAYERS, ARE YOU GOING TO BE – ARE THERE GOING TO BE LAYOFFS?
ROMETTY: WELL, WE ANNOUNCED SOME RESTRUCTURING ACTIONS THAT WE ARE GOING TO TAKE AND THAT IS REALLY GOING TO BE TARGETED HOW TO INCREASE OUR SPEED, SIMPLICITY AND THEN AGAIN, RIGHT SIZE GIVEN THE DIVESTITURES THAT WE HAVE DONE.
FABER: BUT WHEN I HEAR ABOUT SALES EXECUTION ISSUES, I WONDER ABOUT THE MARKETPLACE YOU'RE DISCUSSING AND SO MANY OF THESE AGILE COMPETITORS WHO ARE FAR SMALLER. YOU FEEL CONFIDENT YOU CAN FIGHT THAT BATTLE GIVEN, AGAIN, SIZE BEING A CONSTRAINT, SOMETIMES IN TERMS OF AGILITY?
ROMETTY: LOOK, WE'RE PLAYING TO WIN. I AM VERY CONFIDENT. AND THERE'S AN IMPORTANT PIECE, I WAS WITH A GROUP OF 30 OF OUR BIGGEST CLIENTS JUST A COUPLE DAYS AGO AND WE WERE TALKING ABOUT THERE'S NO DOUBT THAT THERE'S A LOT OF INNOVATION IN THE MARKETPLACE FROM US, FROM OTHERS. BUT WHAT THEY WERE TALKING ABOUT WAS THE ROLE THAT IBM CAN UNIQUELY PLAY AROUND BEING THE NAVIGATOR. BECAUSE YOU ARE SEEING THIS HAPPEN ALREADY. MANY DIFFERENT THINGS SPRINGING UP. BUT WHEN IT COMES TO A REAL ENTERPRISE THAT DOES REAL WORK, YOU'VE GOT TO INTEGRATE THEM WITH THINGS THAT YOU HAVE. THIS IS RIGHT INTO WHAT OUR SWEET SPOT IS. AND IN FACT, IT GETS TO, IF YOU CAN ALLOW ME TO JUMP TO THIS POINT ABOUT CLOUD. I MEAN, PLAYING TO WIN ON CLOUD, WE HAVE ALWAYS SAID THERE WOULD BE THREE THINGS THAT WOULD MAKE A DIFFERENCE ON CLOUD. IT WOULD BE HYBRID, MEANING YOU WOULD CONNECT THESE NEW IDEAS, THESE NEW INNOVATIONS TO YOUR EXISTING SYSTEMS. DATA, IT WOULD MATTER IT WOULD REALLY BE ABOUT DATA. AND SECURITY. ALL THAT IS COMING TO BE NOW. AND THAT IS EXACTLY THE STRENGTHS AND EXACTLY WHAT WE BUILT FOR.
FABER: RIGHT. BUT YOU KNOW, CLOUD YOU MENTION IT, OF COURSE, AND IT IS AN IMPORTANT COMPONENT OF YOUR STRATEGY AND IT IS GROWING QUICKLY, BUT IT'S STILL A REVENUE NUMBER PERCENTAGE WISE. IT'S A VERY SMALL PERCENT OF YOUR OVERALL, BEING 4.4 BILLION, I THINK.
ROMETTY: YES. AS WE EXITED LAST YEAR, 4.4 BILLION.
FABER: AND SO, CAN YOU MAKE THAT TRANSFORMATION QUICKLY ENOUGH TO CONTINUE TO HAVE THE CONFIDENCE OF THE INVESTING PUBLIC, FOR EXAMPLE, THAT YOU NEED AND CONTINUE TO HAVE THE CONFIDENCE OF YOUR BOARD OF DIRECTORS AND YOUR BIG SHAREHOLDES LIKE WARREN BUFFETT?
ROMETTY: YES, I BELIEVE WE CAN. AND I WANT YOU TO UNDERSTAND. REMEMBER, WE RUN THIS COMPANY TO KEEP MOVING IT TO HIGHER VALUE. NOT THAT REVENUE GROWTH ISN'T IMPORTANT. IT IS REVENUE GROWTH IN THE PLACES THAT MATTER AND THEN IT'S CONTINUING TO MOVE TO HIGHER VALUE IN OTHER PLACES. AND SO AS PART OF THAT, I AM ALWAYS GOING TO HAVE A PART OF THAT FORMULA IS TO DIVEST SOME BUSINESSES WHERE IT'S NOT VALUE TO MY CLIENTS AND NOT VALUE TO OUR BUSINESS MODEL ANY LONGER. AND THEN CONTINUE TO MOVE INTO THE NEW PLACES, PIVOT INTO THEM. AND IF YOU TAKE A LOOK AT CLOUD, GREATER THAN 50% AGAIN, THOSE ARE BIG GROWTH RATES. AND EVEN WHEN WE ENDED LAST YEAR AS YOU SAID, 4.4 BILLION AS A SERVICE, 2.2 BILLION. WE ALREADY JUST EXITED THIS QUARTER AT 3.1 BILLION ON AS A SERVICE. SO THESE CONTINUE TO MOVE AND THOSE ARE VERY HIGH GROWTH RATES.
FABER: YOU ARE NO LONGER FOLLOWING THE FIVE-YEAR PLAN THAT WAS SET OUT ORIGINALLY FOR FINANCIAL TARGETS BY YOUR PREDECESSOR, SAM PALMISANO. IS THAT A RELIEF TO YOU? DOES THAT FREE YOU UP IN SOME WAY, PERHAPS THAT YOU WERE NOT – THAT BECAUSE YOU WERE STUCK IN THAT PLAN AND WHAT THAT REQUIRED OF THE COMPANY?
ROMETTY: LOOK, WHAT YOU'RE REFERRING TO IS THE ROAD MAP THAT WE HAD. THE 2015 ROAD MAP.
FABER: YES.
ROMETTY: IT HAD BOTH A FRAMEWORK AND IT HAD AN OUTPUT IN WHAT YOU JUST TALKED ABOUT WAS THE OUTPUT. THE EARNINGS PER SHARE GUIDANCE FOR 2015, WHICH WE TALKED ABOUT TODAY, AS NO LONGER USING AS A BASIS FOR OUR GUIDANCE. BUT THE FRAMEWORK, THAT REALLY – THERE ARE VERY MANY CONSISTENT PARTS OF THAT FRAMEWORK. AND BY THE WAY, IT'S WHAT I THINK OUR LONG-TERM SHAREHOLDERS REALLY VALUE BECAUSE THE ESSENCE OF THAT FRAMEWORK WAS CONTINUE TO MOVE THIS BUSINESS TO HIGHER VALUE, MANAGE IT FOR THE LONG TERM, AND ABOVE ALL, PRIORITIZE THE IMPORTANCE OF DIVIDEND AND SHARE REPURCHASE FOR REALLY RETURNING VALUE TO OUR SHAREHOLDERS. NONE OF THAT CHANGES. THAT PART STAYS THE SAME.
FABER: SPEAKING OF THOSE LARGE LONG-TERM SHAREHOLDERS. MR. BUFFETT, OF COURSE, IS ONE OF THEM. IT HELPS YOU IN THE MARKETPLACE, MANY WOULD ARGUE GIVEN HIS UNIQUE PLACE IN OUR CAPITAL MARKETS. HAVE YOU SPOKEN TO MR. BUFFETT? IS HE SUPPORTIVE OF THE CHANGES THAT ARE GOING ON AND WHAT DID HE SAY IF YOU DID SPEAK TO HIM WHEN YOU TOLD HIM THIS QUARTER IS NOT GOING TO BE A GOOD ONE?
ROMETTY: LOOK, YOU ARE RIGHT. I MEAN MANY COMPANIES WOULD BE VERY HONORED TO HAVE WARREN BUFFETT AS A SHAREHOLDER AS WE FEEL WE ARE, TOO. AND WE HAVE A LOT OF GREAT LONG-TERM SHAREHOLDERS. AND WHILE I WOULDN'T SHARE ANY OF MY INDIVIDUAL CONVERSATIONS WITH HIM, I REALLY BELIEVE THAT WARREN VALUES WHAT MANY OF OUR LONG-TERM SHAREHOLDERS VALUE. AND, IN FACT, I MEAN, HE SAID IT PUBLICLY, AND WE'VE TALKED ABOUT THIS MANY TIMES, THIS IDEA THAT MANAGE FOR THE LONG TERM, DON'T DO ANYTHING THAT IS NOT RIGHT, JUST TO MAKE A QUARTER. AND OF COURSE, DON'T KEEP REVENUE THAT'S EMPTY CALORIES, AS HE WOULD SAY. AND AT THE END OF THE DAY, THIS IS ABOUT RETURNING VALUE TO SHAREHOLDERS. AND SO I THINK THIS IS VERY – WHAT WE ARE DOING IS VERY CONSISTENT WITH WHAT OUR LONG-TERM SHAREHOLDERS WANT. REMEMBER, WE ARE REINVENTING AND TRANSFORMING THIS COMPANY. YOU DON'T GET TO BE 100 YEARS OLD IN THE TECHNOLOGY INDUSTRY WITHOUT ABSOLUTELY CHANGING WHAT YOU ARE. AND NOW, MORE THAN EVER, AT A PACE FASTER THAN IT'S BEEN.
FABER: MY UNDERSTANDING YOU CAN'T COMMUNICATE SPECIFIC, BUT IS HE SUPPORTIVE STILL? DID YOU SPEAK TO HIM AND IS HE SUPPORTIVE?
ROMETTY: I MEAN, I THINK ALL OF OUR SHAREHOLDERS, THEY VOTE WITH THEIR DOLLARS. AND SO THEY'VE ALL BEEN VERY SUPPORTIVE. I MEAN, WE HAVE REGULAR CONTACT AND I HAVE REGULAR CONTACT WITH ALL OF THEM. I WOULD NEVER THOUGH TALK ABOUT ANY INDIVIDUAL CONVERSATION.
FABER: WELL, THEY ARE SUPPORTIVE ALTHOUGH, OF COURSE, TODAY MANY ARE SELLING THE STOCK.
ROMETTY: TOUGH DAY. TOUGH DAY.
FABER: AND THE STOCK IS DOWN 7 OR 8% AT THIS POINT.
ROMETTY: LOOK, OUR THIRD QUARTER IS A DISAPPOINTMENT. I SHOULD CIRCLE BACK. MAKE NO MISTAKE AND I DON'T MINIMIZE THAT. ALTHOUGH IT IS A POINT IN TIME, IT IS A DISAPPOINTMENT TO US. WE ARE GOING TO TAKE BOLD ACTION ABOUT THE QUARTER AND THEN BOLD ACTIONS AS WE CONTINUE TO MOVE TO THE FUTURE.
FABER: BUT IT WOULD SEEM TO ME THAT GIVEN THE TRANSFORMATION THAT IS TAKING PLACE AND WILL TAKE PLACE OVER TIME, YOU STILL MAY HAVE DISAPPOINTMENTS IN THE FUTURE. I MEAN, DO YOU HAVE CONFIDENCE THAT YOU WON'T HAVE A REPEAT OF THIS QUARTER IN THE SENSE OF GIVEN THE CAUSES OF IT AREN'T NECESSARILY GOING TO BE OFFSET BY MANY OF THE THINGS THAT YOU'RE DOING IN TERMS OF HIGHER VALUE BUSINESSES THAT ARE GOING TO TAKE TIME?
ROMETTY: LOOK, I KEEP GOING BACK. I'VE GOT GREAT CONFIDENCE NOT JUST IN THE STRATEGY, BUT IT'S A STRATEGY THAT ALREADY HAS RESULTS. AND A SET OF ACTIONS IF I GO BACK FROM THE BEGINNING OF THE YEAR THAT HAVE BEEN BOLD AND WE'RE GOING TO CONTINUE TO MAKE THOSE. AND JUST RECOUNT BACK FROM THE EVEN JUST JANUARY, A BILLION DOLLARS TO START A WATSON UNIT AND COMMERCIALIZE WATSON. AND THEN ON THE HEELS OF A $2 BILLION ACQUISITION OF SOFT LAYER, A PUBLIC CLOUD. 1.2 BILLION TO EXPAND OUR DATA CENTERS FROM 25 TO 40 CLOUD DATA CENTERS. ANOTHER BILLION INVESTMENT TO BUILD PLATFORM AS A SERVICE, WHICH REALLY GOES INTO THE HAND OF HYBRID CLOUD. WE RELAUNCHED OUR POWER 8 BUSINESS. WE THEN, $3 BILLION TO TAKE OUR SEMICONDUCTOR BUSINESS INTO THE FUTURE FOR RESEARCH AND DEVELOPMENT. AND THEN I THINK ANOTHER THING THAT'S REALLY IMPORTANT TO NOTE IS THE ANNOUNCEMENTS WE'VE MADE NOT ONLY WITH APPLE, BUT SAP. I MEAN, THESE REALLY FRAME US. IT'S A VERY OPEN PARTNERING, BUT THEY POSITION US AS THE GO-TO ENTERPRISE FOR THE FUTURE. AND THEN YOU ADD THAT AND THEN ADD THE DIVESTITURES ABOUT MOVING TO THE FUTURE. SO THIS IS A BOLD SET OF MOVES. IT'S WHAT'S REQUIRED. IT'S WHAT WE MUST DO TO REINVENT THIS COMPANY. AND WE ARE GOING TO CONTINUE DOWN THAT PATH. AND THEREFORE, I'VE GOT GREAT CONFIDENCE BECAUSE OF THE RESULTS YOU ALREADY SEE OUT OF THOSE MOVES INTO THE HIGHER VALUE AND THEN THE MOVES THAT ALLOW US TO KEEP GOING TO HIGHER VALUE.
FABER: YOU MENTIONED OF COURSE THE DIVESTITURES AND THEY HAVE BEEN OF GREAT SIGNIFICANCE. ONE REASON WHY WE CAN'T REALLY LOOK AT YOUR PREVIOUS HISTORICAL REVENUES AND USE IT AS A BASIS FOR COMPARISONS ANY LONGER. BUT I'VE HAD A NUMBER OF CONVERSATIONS WITH YOUR PEERS TO A CERTAIN EXTENT WHO ARE MAKING DECISIONS TO SPLIT COMPANIES. MEG WHITMAN OF COURSE COMES TO MIND. OR JOHN DONAHOE I MENTIONED EARLIER. AND AGAIN, THEY TALK ABOUT THE SPEED OF THE MARKETPLACE AND THE COMPLEXITY OF THEIR OWN BUSINESSES. IT'S NOT INCONCEIVABLE SOME WILL SAY, YOU KNOW, WHAT, GINNI ROMETTY, IT'S TIME TO SPLIT UP IBM. YOU WOULD BE BETTER OFF IN PIECES COMPETING IN THESE MARKETPLACES SEPARATELY WITH A MORE AGILE COMPANY. WHAT WILL YOU SAY IF, IN FACT, THOSE KINDS OF QUESTIONS AND COMMENTS START COMING YOUR WAY?
ROMETTY: LOOK, UNLIKE MANY OTHER COMPANIES, WE HAVE BEEN AGGRESSIVE ABOUT CHANGING OUR COMPANY ON OUR OWN AND THIS STARTED YEARS AGO. AND SO I BELIEVE WE'VE MADE ALREADY MANY OF THE MOVES THAT POSITION US TO BE SUCCESSFUL IN THE FUTURE AND WE'RE GOING TO CONTINUE. AND IN FACT, THE VALUE WE BRING FOR THE ENTERPRISE, I THINK OUR CLIENTS CLEARLY SEE THAT. AND MUCH OF IT HAS TO DO WITH THE INTEGRATION OF PIECES THAT WE HAVE WHEN WE BRING TOGETHER CLOUD, DATA, ANALYTICS. AND SO IT'S BOTH VERY FOCUSED AND WE'VE TAKEN OUR OWN ACTIONS TO REINVENT OURSELVES.
FABER: GINNI ROMETTY, THANK YOU FOR YOUR TIME. THANK YOU FOR HAVING US HERE, OF COURSE IN HQ.
ROMETTY: THANKS, DAVID. THANK YOU FOR DOING THIS.
FABER: OBVIOUSLY ON A DISAPPOINTING DAY, AS YOU YOURSELF HAVE SAID.
ROMETTY: YES.
FABER: GINNI ROMETTY, THE CHAIRMAN AND CEO OF IBM. WE ARE LIVE FROM THE COMPANY HEADQUARTERS HERE IN ARMONK. BACK TO YOU GUYS.
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