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IBM Touts Cloud & Red Hat Growth

Mitch Wagner
10/17/2019

IBM highlighted growth in the cloud and its newly acquired Red Hat business in its quarterly earnings report Wednesday, but its growth still lags the public cloud market overall.

IBM reported revenue of $18 billion, down 3.9% year-over-year, for the third quarter 2019, which ended September 30.

Cloud revenue was $5 billion, up 11% year-over-year, and $20 billion over the last 12 months. That compares with overall cloud growth of 24% in the first half of the year, for infrastructure, platform and applications, according to Synergy Research. Infrastructure and platform grew at more than 40%, led by Amazon, Microsoft and Google, while hosted private cloud grew at more than 20%, led by IBM, Rackspace and NTT.

Revenues for Red Hat were up 19% or up 20% adjusted for currency, in IBM's first quarter since acquiring the open source software provider in July. IBM used the latter figure on a call with analysts Wednesday afternoon, and noted that Red Hat revenues for 2018 were in the teens.


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IBM's Cloud & Cognitive Software business, which includes Red Hat, cognitive applications such as Watson, and transaction processing platforms, saw revenues of $5.3 billion, up 6.4%.

Global Technology Services, IBM's largest business, drew revenues of $6.7 billion, down 5.6%. Systems, which includes systems hardware and operating systems software, took in $1.5 billion revenues, down 14.7%, reflecting the end of the the IBM z14 mainframe product cycle. But a new mainframe, the z15, shipped in the last week of September, which was also the last week of this reporting quarter.

IBM traded at $134.75 down 5.18% after hours Wednesday, on missed analyst estimates.

IBM's cloud growth compared unfavorably with Amazon Web Services, which is growing at about 45% from a much larger base, as well as Microsoft and Google, about 70% each, Ovum analyst Roy Illsley tells Light Reading. However, IBM is in a different market, providing more of a "white-glove" service.

IBM is positioning itself badly for investors and potential customers and partners in the telco vertical, who compare IBM growth unfavorably with Google, Microsoft and AWS, Illsley says. "They are different clouds and growing at different purposes, but that's the problem IBM has when it refers to the cloud," he says.

Although IBM has scored marquee deals with the likes of Vodafone and AT&T, most telcos will be unimpressed, and will view IBM as a niche opportunity at best, Illsley says.

The question is whether the Red Hat acquisition will boost IBM's growth, next quarter, the quarter after that, or certainly by this time next year, he says. IBM acquired Red Hat for the software vendor's open source and cloud expertise and culture.

"Is IBM missing the point of the cloud and getting it horribly wrong? Red Hat gives them an opportunity to get it right," says the Ovum man.

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— Mitch Wagner Visit my LinkedIn profileFollow me on TwitterJoin my Facebook GroupRead my blog: Things Mitch Wagner Saw Executive Editor, Light Reading

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