IBM: The Cloud Taketh Away If you wondered why IBM has moved so fast on cloud computing in the past couple of months, look at Tuesday's earnings report. Then get ready for even more action, including sales of business units and staff cuts. IBM announced fourth-quarter revenue of $27.7 billion, more than $500 million below analysts" estimates of $28.25 billion. In after-hours trading the stock was at about $182.30 a share, off 3 percent. Almost all the problem was in sales of hardware, which fell 26 percent compared with a year ago, to $4.3 billion. For the year, the systems and technology group, where computer hardware resides, had revenue of $14.4 billion, a drop of 18.7 percent. Revenues were slightly off at the technology services and business services groups as well, but gross profit margins grew there. In the hardware business they were down by 3.5 percentage points, to 35.6 percent. Selling less stuff and making less money on it? You don't need to be one of the company's top M.B.A."s, of which there are many, to see that something has to give. The chief problem is the very thing IBM is running at from another angle: cloud computing. While mainframe computers and specialized servers can still make money, Big Blue is being killed on the kind of commodity-based x86 computer servers that cheaply fill cloud systems. Brand used to mean something. Now outfits like Google and Amazon, which increasingly build systems for rent by the general public via the Internet, buy their x86 machines (based on a chip design commonly made by Intel and AMD) in shrink-wrapped racks from cheap Asian suppliers. It's hard for IBM, a big American company with lots of expensive high-touch consultants, to compete with that. If you can't beat them, join them. IBM last year paid $2 billion for Softlayer, its own bid for a public cloud, and more recently said it will spend $1.2 billion this year alone beefing up this business. In November, IBM announced that Watson, its advanced cognitive computing system, would be available via a public cloud system. This month, the chief executive, Virginia Rometty, made Watson its own business unit. That last point, in particular, means that IBM is racing toward the future. Next, it needs to rid itself of its unneeded parts. The company has long been rumored to be peddling the x86 business, along with x86 blade computers, to Lenovo of China, the company that in 2005 bought IBM's personal computer business. Now that deal is all but certain. There are likely to be significant staff cuts inside IBM's hardware division as well, either through the Lenovo deal or with an associated termination of businesses that provide lower-end data storage and peripheral equipment. It seems to be the season for it: Last week, Intel indicated it would be laying off about 5,000 people, or 5 percent of the company's work force, as it copes with a drop in demand for personal computers.