IBM's Long Decline Continues, Despite Cloud Growth

Scott Ferguson

IBM's third-financial quarter results offered a mixed view of the company's ongoing transformation. While cloud revenue grew 25% annually to $15.8 billion, and the company managed to beat Wall Street expectations for the quarter, Big Blue also posted its 22nd consecutive quarterly revenue decline.

Results were good enough to push the company's stock in after-hours trading by about 5%, following the October 17 announcement.

For the third quarter, IBM posted non-GAAP revenue of $19.2 billion and earnings per share of $3.30. Financial analysts were looking for revenue of $18.6 billion and earnings per share of $3.28, according to CNBC.

Still, non-GAAP net income stood at $3.1 billion -- a 2% year-over-year decline. Revenue, while beating expectations, dropped about 1% year-over-year.

Mainframes are now cool, and profitable, again
(Source: IBM)
Mainframes are now cool, and profitable, again
(Source: IBM)

There were several bright spots within the IBM report, including the company's strategic imperatives section, which includes analytics, cloud, mobile and security. For the last 12 months, revenue has totaled $34.9 billion, a 10% increase. Third quarter revenues were up about 11% to about $8.8 billion.

IBM's cloud revenue now totals $15.8 billion for the last 12 months, a 25% year-over-year increase. For the quarter, revenue increased 20% to $4.1 billion.

The strategic imperatives section now accounts for about 45% of all IBM revenue.

"In the third quarter we achieved double-digit growth in our strategic imperatives, extended our enterprise cloud leadership, and expanded our cognitive solutions business," CEO Ginni Rometty wrote in the announcement.

Even IBM's legacy systems got into the act during the quarter. The company's systems divisions, which includes System z mainframes and storage, posted revenue of $1.7 billion, a 10% year-over-year increase. Much of this was driven by the release of the z14 System in July. (See IBM Brings Big Iron to the Big Cloud.)

"It's been reinvented for the cloud and cognitive era, including blockchain," Martin Schroeter, IBM's senior vice president and CFO, said of the mainframe during a call with analysts.

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The Cognitive Solutions division, which includes the company's investments in artificial intelligence, posted revenues of $4.4 billion, a 4% year-over-year increase. However, the Global Business Services division saw its revenue fall 2% to about $4.1 billion. In addition, the Technology Services & Cloud Platforms division, which includes infrastructure services, technical support services and integration software posted revenues of $8.5 billion, which was a 3% decline.

In an email to clients, Patrick Moorhead, president and principal analyst for Moor Insights & Strategy, noted that IBM's struggles in certain areas reflect bigger issues within the industry, especially with the shift to cloud and new technologies such as AI.

"IBM isnt alone in the challenge of filling declining traditional enterprise revenue with 'digital transformation' revenue like cloud, mobile, social, cognitive and security. HPE, Cisco Systems, and Dell EMC are in a very similar position, attacking the problem differently," Moorhead wrote.

In addition to its quarterly numbers released Tuesday, IBM also noted it expects to deliver earnings per share of $13.80 for the year. Wall Street analysts put that number at $13.75.

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— Scott Ferguson, Editor, Enterprise Cloud News. Follow him on Twitter @sferguson_LR.

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[email protected]
10/19/2017 | 10:46:49 AM
Re: Turning Big Blue into more green
Scott, I agree they did not wait until they couldn't turn the ship as many other giants have. It's very possible that they will have a healthy financial future if they continue their focus on the evolving tech landscape and invest appropriately.
10/19/2017 | 10:38:51 AM
Re: Turning Big Blue into more green
@maryam: You are very right on all those counts. I think the one thing that was interesting here is that IBM was close this to breaking the revenue losing streak and some of the financial reports that came after seemed to indicate that. I think IBM may be close to figuring it out.

[email protected]
10/19/2017 | 10:35:27 AM
Turning Big Blue into more green
Scott the numbers reflect that while big blue is still facing challenges it is investing in the future and trying get traction in the emerging and current tech markets. It is never easy for large companies with long-standing infrastructures but it can be done. As the cloud market shakes out it will be interesting to see who gets which part of that market and which providers just fade away.
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