Wall Street is happy with IBM's business turnaround.

Mitch Wagner, Executive Editor, Light Reading

January 22, 2019

4 Min Read
IBM Had a Very Good Day in the Cloud

Growth in IBM's cloud business helped the company boost revenue and beat expectations for fiscal 2018, and sent IBM stock soaring after-hours Tuesday. This follows the company announcing a big cloud deal Tuesday morning, and two others last week.

For the full year, revenue was $79.6 billion, up 1%. Revenue for the lines of business IBM designates as "strategic imperatives," including hybrid cloud, AI, security and digital, was $39.8 billion, up 9%. (See IBM Reports 4Q Revenue $21.8B, Down 3% YoY.)

Full-year cloud revenue was $19.2 billion, up 12%. That's a fraction of the rate that the overall cloud market is growing, but IBM Corp. (NYSE: IBM) sees itself as operating in a high-value segment of the cloud market, helping enterprises move mission critical workloads to hybrid platforms from multiple cloud providers, according to James Kavanaugh, IBM senior vice president and CFO, on a call with analysts Tuesday. (See Cloud Spending Growth Slows, While Big Providers Squeeze Little Guys Even Harder.)

IBM reported earnings of $4.87 per share for the quarter, versus $4.82 analyst estimates. Revenue for the quarter was $21.76 billion, compared with $21.71 billion expected by analysts.

IBM stock traded up more than 6% after hours, at $130.33 per share, after declining 1% during the day.

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Revenue was down 3% for the fourth quarter of 2018 year-over year. However, Kavanaugh said that's a reflection of outstanding revenue in the fourth quarter of 2018, driven by introduction of a new IBM Z-Series mainframe. (See IBM Earnings Lesson: Don't Call the Mainframe a Dinosaur.)

That mainframe continues to drive the cloud and pervasive encryption business, Kavanaugh said.

By segment: Cognitive Solutions saw $5.5 billion quarterly revenue, up 2% year-over-year, led by analytics and AI. Global Business Services saw $4.3 billion revenue, up 6% year-over-year. The Technology Services and Cloud Platforms Segment drew $8.9 billion, flat year-over-year. Nonetheless, IBM touted continued momentum in hybrid cloud. The Systems Segment, which includes the Z Series mainframe, saw $2.6 billion revenue, down 20% year-over-year.

IBM is in a multi-year transition from systems to high-value emerging businesses, including hybrid multi-cloud, cognitive computing and analytics. For 2018, the company met the goals it stated a year ago, of growing revenues, operating profits and earnings per share, Kavanaugh said.

IBM's $34 billion acquisition of Red Hat systems is driven by that multi-cloud strategy, Kavanugh said. The company expects to close that acquisition in the second half of the year. (See Red Hat Shareholders Greenlight $34B IBM Acquisition.)

Additionally, IBM divested legacy software, including Notes and Domino, in December, to make room for future growth. (See IBM Sells Off Notes & Other Software You Barely Remember for $1.8B.)

And in the past six days, IBM announced three significant cloud deals:

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About the Author(s)

Mitch Wagner

Executive Editor, Light Reading

San Diego-based Mitch Wagner is many things. As well as being "our guy" on the West Coast (of the US, not Scotland, or anywhere else with indifferent meteorological conditions), he's a husband (to his wife), dissatisfied Democrat, American (so he could be President some day), nonobservant Jew, and science fiction fan. Not necessarily in that order.

He's also one half of a special duo, along with Minnie, who is the co-habitor of the West Coast Bureau and Light Reading's primary chewer of sticks, though she is not the only one on the team who regularly munches on bark.

Wagner, whose previous positions include Editor-in-Chief at Internet Evolution and Executive Editor at InformationWeek, will be responsible for tracking and reporting on developments in Silicon Valley and other US West Coast hotspots of communications technology innovation.

Beats: Software-defined networking (SDN), network functions virtualization (NFV), IP networking, and colored foods (such as 'green rice').

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