IBM Had a Very Good Day in the Cloud

Mitch Wagner
1/22/2019

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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