IBM earnings shed little light on Vermont plant


ESSEX JUNCTION -- IBM beat revenue estimates in the second quarter, the company announced Thursday.

But talk of the tech giant divesting its manufacturing wing was noticeably absent from the quarterly conference call updating investors on earnings.

Rumors of a pending sale of its chip-making unit have concerned Vermont workers, business leaders and state officials for months. IBM's plant in Essex Junction is one of three major facilities in its Systems and Technology Group, which manufacturing rival GlobalFoundries reportedly was negotiating to buy. Another round of conjecture Tuesday hinted the deal may have fallen through.

Martin Schroeter, IBM's senior vice-president and CFO of finance and enterprise transformation, said Thursday the firm is staunchly committed to leading the semiconductor market.

"We've been very vocal about our goal to remain the absolute leader in high-end systems," Schroeter said.

The commitment comes despite the division's continued decline in revenue growth, which Schroeter said dragged down the company's overall profitability - but not as much as it has in the past.

Revenue in the Systems and Technology Group dropped 11 percent this quarter compared to a year ago, IBM said. But Schroeter said he believes IBM is on track to stabilize the division's profit base for the year. The STG group's revenue fell 23 percent, year-over-year, in the first quarter.

The Systems and Technology Group is heavily involved in emerging markets, where IBM has seen significant declines. Along with other factors, that downturn hit STG hard, Schroeter said.

But last year's layoffs are borne out in this year's cost savings, he said. And new products to meet booming demand for cloud services and big data computing power will steady the keel, he said.

Schroeter cited a $3 billion investment IBM announced July 10 as evidence of the company's confidence.

"This investment is clearly focused on the distant future," Schroeter said. "We have to figure out what the post-silicon world will look like."

The sizable research and development investment - it's triple what IBM put into initiatives for its cognitive technology system, known as Watson, this year - is primarily geared toward shrinking semiconductors to 7 nanometers and smaller.

The smaller size will allow computing technology to move beyond silicon architectures and into synaptic computing, quantum devices, carbon nanotubes, photonics and other futuristic innovations "that could transform computing of all kinds," according to company spokesman Doug Shelton.

In the conference call, Schroeter pointed repeatedly to such technological innovations, cloud computing, big data and analysis, security and mobility as the future of IBM's profitability.

Additionally, IBM announced Tuesday a significant partnership with Apple to develop native applications for iPhone and iPad devices - a move some financial observers consider a "win-win" for both firms.

The fate of IBM's Essex Junction plant amid such investments, however, remains unclear.

The $3 billion research and development investment primarily involves teams in New York, California and Europe.

And the aging facility, which produces much larger technology than current markets demand, is known more for manufacturing than software development.

Schroeter also referenced IBM's ongoing strategies to align its portfolio with high-growth products and services, and to wind down its manufacturing operations.

Overall, IBM reported a 2 percent drop in revenue for the quarter.


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