Twitter stock jumps on report that CEO is on way out

After reporting slowing growth and getting passed by Instagram in number of users, Twitter's stock price jumped Tuesday on speculation that CEO Dick Costolo might be leaving the company.

CNBC.com reported Monday that Robert Peck, an analyst at investment bank SunTrust Robinson Humphrey, predicted that Costolo will leave the social network in 2015.

"We think there's a good chance he's not there within a year," Peck said. He also said there are "a lot of interesting candidates" that could take over Twitter's helm.

Twitter did not respond to a request for comment.

The prediction caused the company's stock to jump 3.6% Monday, reaching $38.43 a share. On Tuesday, the stock rose to $39.25 and then dropped to $37.79 by mid-afternoon.

Zeus Kerravala, an analyst with ZK Research, said he's not surprised that interest in Twitter spiked on even speculation that Costolo might be leaving.

"I know there's a lot of questions about his ability to run Twitter," Kerravala said. "If the company doesn't perform well or the company misses a couple of quarters, there will be tremendous investor pressure to oust him. If the company performs, he's OK."

Twitter, though it's increasingly used for political and social protest and company branding, has suffered from slowing growth.

In October, the company reported slower growth in active monthly users than it had in the previous quarter. In the quarter ending in Septembertt September, Twitter's monthly user base grew by 4.8%, to 284 million users around the world. In the previous quarter, however, the user base grew by 6.3%.

Earlier this month, Twitter received more unsettling news when photo-sharing site Instagram announced that its monthly user base had jumped 50%, taking its base to 300 million users.

With that leap, Instagram surpassed Twitter in number of users.

The company also shuffled several executives this year, with three different heads of product in 2014 alone. Daniel Graf, one of Twitter's head of products this year, was demoted in November and then left the company in December, according to re/code.

"There appears to be a lot of executives leaving for other companies," said Patrick Moorhead, an analyst with Moor Insights & Strategy. "Twitter has had a tough time compared to Facebook and that's what investors are fixated with. I think they're feeling mounting pressure from shareholders and employees."

Kerravala said it would help the company if Costolo leaves his top post. "Initially, it would be a good thing," he added. "But long term, it depends on who they bring in and if the slowing growth at Twitter is leadership related or more structural."

He added that a lot hinges on the company's next financial report. "This upcoming earnings call in February will have a lot to do with whether [Costolo] is CEO next year at this time."

Moorhead, though, isn't sure that a change in leadership would help Twitter.

"I think Costolo should be given a year under close watch by the board," he said. "The company is too young and just recently public. The cement needs to dry a while before that makes sense. That is, unless, there are some things going on that people are unaware of. For instance, if the executive team has lost confidence in Costolo, it would be time for him to go, but I just don't think Twitter is there yet."

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Hardware torpedoes IBM's Q4 revenue

Sluggish sales of IBM mainframes and other hardware put a damper on the company's latest quarterly earnings report

Still hampered by slow hardware sales, IBM reported a 5.5 percent decline in revenue for the fourth quarter, even as it managed to post a 6 percent gain in net income.

Because of the sluggish revenue, IBM senior management will forgo their bonuses, or "personal annual incentive payments," for the year, said Ginni Rometty, IBM chairman, president and CEO, in a statement.

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IBM's fourth-quarter revenue was $27.7 billion, compared with $29.3 billion in the fourth quarter of 2012, the company announced Tuesday. IBM's revenue fell short of analysts' expectation of $28.2 billion, an estimate provided by Thomson Reuters. Revenue for the entire year was $99.8 billion, compared with $104.5 billion in the year prior, a 4.6 percent decrease.

IBM's fourth-quarter income was $6.2 billion, compared with $5.8 billion in the fourth quarter of 2012. For the year, IBM reported $16.5 billion in income, down 1 percent from $16.6 billion in the prior year.

Revenue from IBM's Systems and Technology hardware segment was $4.3 billion, down 26 percent from the fourth quarter in 2013. For the year, Systems and Technology delivered $14.4 billion, a decrease of 18.7 percent from the full year 2012.

The services divisions produced so-so results for the company. Revenue from Global Technology Services was $9.9 billion for the quarter, down 3.6 percent from $10.3 billion the same quarter a year before. Revenue from the Global Business Services segment grew slightly, up 0.6 percent to $4.7 billion for the fourth quarter, which ended Dec. 31.

For the year, Global Technology Services revenue shrank to $38.5 billion, down 4.2 percent from $40 million the year before. Global Business Services revenue also shrank by 0.9 percent, to $18.4 billion from $18.6 billion a year ago.

Revenue from the software business grew modestly. For the fourth quarter of 2013, the software group logged $8.1 billion in revenue, a 2.8 percent increase from $7.9 billion in the same quarter a year ago. For the year, the IBM software group generated $26 billion in revenue, up 1.9 percent from $25.4 billion in 2012.

"Our software, services and financing businesses are all on solid ground, but in hardware, we've entered the back-end mainframe product cycle, and we are dealing with some challenges in other areas. These are impacting our overall results," said Martin Schroeter, IBM chief financial officer, in a webcast to investors.

With hardware, IBM was plagued in a number of areas. System Z and mainframe sales were down because they are in-between product releases. Other areas of hardware are feeling the impact of "business model issues due to market shifts," some of which is coming from pricing pressure from lower-cost hardware alternatives, Schroeter said.

System Z sales were down 37 percent, when compared to a very strong quarter a year ago. Sales of MIPS (Microprocessor without Interlocked Pipeline Stages) mainframe systems declined 26 percent, also compared to a very strong quarter a year ago. Sales of Power systems declined 31 percent. While the company continues to ship Power systems, the greater efficiency of the newer systems reduces the size of the systems being shipped, lowering revenue for IBM, Schroeter said. System X sales were down 15 percent.

Pure systems, a new offering introduced last year, provided one bright spot on the hardware side. IBM shipped more than 2,500 Pure systems in the past quarter, and 10,000 since launch.

Another area of concern for IBM has been sales in China, which declined by 23 percent, chiefly in hardware sales.

A large part of this decline came from a broad-reaching Chinese government economic reform initiative, which has stalled state agency IT purchases. This initiative also slowed sales in IBM's last quarter as well.

"While there is more clarity in the overall plan, we continue to believe it will take some time for business in China to improve," Schroeter said.

In contrast, revenue in Japan grew by 4 percent, and has grown for the past five quarters. Schroeter attributed this success to IBM's capability to shifting market focus and investment to meet current needs in IT.

In the past few weeks IBM announced two major initiatives. The company plans to invest an additional $1.2 billion to beef up its cloud infrastructure. It has also launched a new business group focused on providing Watson-style cognitive computing capabilities to help organizations make better use of their large amounts of data.

The company is planning on both initiatives to lead to substantial business over time.

"We believe that data as a natural resource will drive demand going forward, and big data analytics will provide the basis for competitive differentiation," Schroeter said.

Data analysis is now "nearly a $16 billion" annual business for the company, he said. Cloud business accounts for $4.4 billion in revenue for the company, of which $1.7 billion was delivered as a cloud service.

IBM continued to perform well for investors. This quarter, the company posted earnings per share of $5.73, a 12 percent increase over EPS of $5.13 for the fourth quarter of 2012. For the year, earnings were $14.94 per share compared with $14.37 per share in 2012, a 4 percent increase.

The company is still on track to reach $15 per share by 2015, Schroeter said.

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Dell to make line of PCs with recycled plastics

Dell is expanding its hardware take-back program to acquire more plastic for reuse in laptops and desktops

Dell is making a line of PCs using plastics obtained by expanding its recycling program.

The company has expanded the hardware take-back program to more places worldwide, aiming to collect and reuse more extracted plastic and metals in PCs, monitors, hardware panels and other products.

Dell's OptiPlex 3030 all-in-one, which will ship next month, will be the first product of that effort. Starting next year, more laptops, desktops and monitor back-panels will be made using recycled plastic, said Scott O'Connell, director of environmental affairs at Dell. The products will be certified as sustainable by UL (Underwriters Laboratories).

Dell will save money by reusing plastic, but O'Connell did not say whether the savings will be passed on to customers through lower prices. But it will be easier for more people to recycle electronics and Dell will also provide a PC mail-back option, O'Connell said.

Dell's plan to establish a recycling chain internally could reduce the need for "virgin" plastics, which can be environmentally damaging to make, said Gary Cook, senior IT analyst at Greenpeace International.

Incineration of plastic from disposed computers can be toxic and reusing plastics in new computers or other parts reduces "dirty energy," Cook said.

"We need to see plastics last longer," Cook said.

Companies like Apple have helped raise expectations of sustainability in computers and others are following suit, Cook said. PC makers are using more metals in computer chassis and handset makers are using more nonpetroleum plastics.

Dell was criticized last year by Greenpeace for veering away from its carbon-neutral goals and sustainability advocacy. The company ranked 14th among most green IT companies, behind Microsoft, IBM, Hewlett-Packard, Wipro, Fujitsu and Google, among others.

Dell curbed its sustainability strategy when it was trying to go private last year, but has now reinvigorated that effort.

"They are trying to show some initiative," Cook said.

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How IBM Plans to Get With the Times

I like the IBM Edge conference because it tries to showcase how infrastructure can provide a large company with a competitive edge. While the event clearly contains content on IBM products and services, the emphasis appears to be on getting things. This year's event also offered a snapshot of how IBM is adapting to address one of the most massive changes the technology market has yet made.

Remember, the Fountain of Youth Is a Myth

Perhaps the strongest metaphor for the problem that IBM faces was the opener for the first keynote talk: A brilliant guitarist who's only 11 and has been playing for just three years. (I found that personally depressing.) An older musician soon joined him; he was able to keep up, and perhaps even outplay him, thanks to his experience.

This older musician represents IBM's potential. IBM can never again be an amazing young company, but its experience and history should let it step up and at least match any young firm. The key here is that the older musician matched the younger musician's tune and didn't try to step in with classic rock. IBM must be agile enough to play as well as the young companies entering the market to make its experience seem like an advantage.

As the youngster left the stage, and he was asked who he wanted to be like, he said he just wanted to be himself. There's the problem with the young company - it's still trying to figure out what it will be. That's a painful path that the older company has already completed. IBM knows what it is - and that's the sustaining advantage that any older company must remember. IBM's most iconic CEO, Thomas Watson Jr., said it best: To succeed, you have to be willing to change everything but who you are.

IBM Partnerships, Products Position Company Well

Perhaps IBM's most powerful and interesting move to the sale of the IBM System X group to Lenovo. This goes to the heart of the "change everything" part of the equation. System X wasn't working inside IBM. Lenovo's own server group represents an increasing threat, but it's not growing very quickly. System X brings low margin to IBM, but Lenovo is a low-margin company, so it could take this division and actually increase its margins. In short, IBM is trying to eat its cake and have it, too.

In addition, the ongoing drama between the U.S. and China on data security makes it nearly impossible for U.S. companies to sell in China and vice versa. IBM and Lenovo clearly execute better than most companies, but this issue still hampers them both. The deal surrounding the acquisition provides an answer: Lenovo can take the lead selling IBM products in China, while IBM can take the lead selling products in the parts of the U.S. where this conflict poses problems (such as the U.S. government). Neither company has ever been identified as working against its customers, and both firms' ability to assure a willing outcome should be a common competitive advantage.

That said, IBM does have another clear advantage: Watson. IBM is the only company working on artificial intelligence at enterprise scale, and Watson represents the next big step in real-time applied analytics-based decision support.

Integrated into IBM offerings, this system should significantly improve the decision accuracy of IBM executives and IBM customers as well. Watson stands out in IBM's line as a massive competitive advantage, as it turns the rest of IBM's data analytics solution into something that's nothing short of industry changing.

One IBM customer, a huge healthcare company, said its goal was an enterprise-scale solution using cloud methods and technologies. Buyers at this size need the compliance of an enterprise company and want the cost advantages of the cloud.

Everything Old Is New Again

That's what IBM presented this week - and it demonstrated that IBM's transition to a very different company continues. Once complete, IBM will have offerings such as Watson and partnerships with firms such as Lenovo that are unique, powerful and unmatched in the rapidly changing technology world.

IBM Edge 2014 provided a unique view into the future of at-scale cloud computing infrastructure and the near-term future of IBM as a company that plans to be the very best at providing what you need when you need it.

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