IBM bets its future on cloud, data, and a little bit of hardware

To lead IBM to greener pastures, the tech giant is banking on data, the cloud and “systems of engagement” for real-time communication.

That’s what Big Blue said in the 2013 annual report it released to investors this morning.

“The modern demands of Big Data, cloud and mobile require enterprise-strength computing, and no other company can match IBM’s ongoing capabilities and commitment to developing those essential technologies, IBM’s chief executive, Ginni Rometty, wrote in a letter to investors.

Other big tech vendors, like Intel and Pivotal, are counting on cloud computing and big data to help them grow, not to mention social or mobile initiatives. But as IBM repositions hardware and software to focus more on those trends, it makes bold pronouncements that amount to the most conservative assessments of where technology is headed.

For example, companies and other organizations increasingly try public clouds to handle workloads. And as that happens, companies buy fewer standard servers from big brands like Dell and IBM. The cloud providers end up buying servers in big bulk from lesser known vendors like Quanta. IBM recognized that shift and recently managed to rid itself of many lines of low-end servers

Yet hardware continues to be a needs-improvement area for IBM. Rometty cited the company’s hardware business as one of two key challenges (the other being growth in certain growth markets).

Some have wondered if IBM would gradually divest itself of all hardware and focus exclusively on software. But that’s not in the cards — not in the near term, at least.

“[L]et me be clear—we are not exiting hardware,” Rometty wrote. “IBM will remain a leader in high-performance and high-end systems, storage and cognitive computing, and we will continue to invest in R&D for advanced semiconductor technology.”

That especially makes sense given recent announcements like IBM’s $1 billion investment in fast flash storage and its $1 billion commitment around Linux and Power Systems servers. Big Blue can’t just about-face on such initiatives.

Somehow, the company sees itself growing revenues, despite recent declines in hardware sales and a 4.6 percent year-to-year decline in revenues in 2013.

And IBM says it will run toward businesses with higher profit margins and repurchase outstanding shares, in a quest to deliver on a promise to provider at least $20 in earnings per share next year. That number was $16.28 in 2013.

IBM has been taking steps to run more software from clouds. Consider its SoftLayer expansion investment, and its moves around the Watson supercomputer technology.

And deals like the recent Cloudant acquisition could help make IBM a more natural storehouse for data in clouds — whether on IBM’s cloud or other companies’ clouds.

Even so, with more than 400,000 employees, IBM has lots of moving parts. Getting everything to move in harmony can’t be easy. Which is why it will be fun to watch the company try to execute on its stated goals for the future.

Read the annual report in its entirety here.