Despite the ongoing confidence of Warren Buffett -- arguably the greatest investor of all time -- things haven't been exactly coming up roses at information-technology behemoth IBM (NYSE:IBM) lately.

IBM Chart

IBM data by YCharts.

After leveraging some seriously savvy financial engineering for years, IBM's slow adaptation to our cloud-based future has cost Big Blue. However, IBM recently unveiled some rather ambitious goals as part of its ongoing business model evolution.

Can this elephant still dance?
IBM has made it no secret it intends to bet big on many of the largest growth spaces in tech today -- buzzword-laden areas including cloud computing, artificial intelligence, and the Internet of Things. Providing some more specificity, IBM recently announced plans to invest $3 billion over the next four years to expand its Internet of Things offerings.

That's all perfectly understandable. However, as CEO Ginni Rometty said at the company's investor day in late February, IBM hopes to scale its investments in IoT, data analytics, cloud computing, and other areas of strategic focus into a collective $40 billion in revenue by 2018.

 Source: Source: IBM

For context, this targeted $40 billion could represent roughly 45% of IBM's projected sales in 2018, based on analyst estimates compiled by Reuters.


FY 2014

Projected FY 2018

% Change

New Growth Initiative Sales ($Bil)




As a % of Sales




Total Sales ($Bil)




Source: IBM investor relations.

Now, that's by no means impossible. IBM employs roughly 400,000 employees and generated about $93 billion in sales in its fiscal 2014. It has some of the deepest engineering talent out there and the financial clout to acquire its way into new markets. However, for a company of that size and scope, reorienting or overhauling roughly half the organization in a relatively short time frame does strike me as a tall order.

Color me skeptical
What's particularly concerning is what these projections say about the state of IBM's revenue base. The need for such a drastic overhaul certainly begs the question of whether its sales base is at even greater risk of contraction than many suspect.

IBM reported a $128 billion service contract backlog at the end of last year, and clients are not likely able to migrate away from the company's software platforms en masse in short order. However, seeing how much IBM expects to yield from its current generation of investments in emerging technologies and that even these lofty future gains still won't drive much (if any) revenue growth, Big Blue's future course could prove more precarious than it would have you think.

Source: IBM. 

Looking at IBM's projected long-term financial model, it appears nearly identical to management's strategy for driving returns for the better part of the last decade: growing revenue in the low single-digits, continually optimizing its product mix to bolster bottom-line margin expansion, and returning the bulk of its proceeds to shareholders via dividends and buybacks.

However, with clear challenges to IBM's sales base clouding at least its near-term prospects, the ease of achieving these goals does not seem as clear-cut as in the past.

Viewed in their entirety, this series of projections paints IBM's future course in far less certain terms than we're used to for a company as renowned for its stability as IBM. Big Blue has defied the odds before and executed significant strategic shifts, but these numbers certainly paint an unpleasant picture. So with IBM having to achieve quite a bit in the years to come, here's to hoping this elephant can still dance.