IBM Had a Very Good Day in the Cloud
Wall Street is happy with IBM's business turnaround.
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:
Juniper Networks Inc. (NYSE: JNPR) tapped IBM to manage its existing infrastructure and move to the cloud in a deal valued at $325 million. (See IBM Inks $325M Deal to Move Juniper to Cloud.)
IBM and Vodafone Group plc (NYSE: VOD) entered a $550 million partnership to offer cloud services to European enterprises. (See IBM, Vodafone Strike $550M Cloud Deal.)
And Tuesday morning, IBM announced a deal to provide cloud infrastructure to BNP Paribas, France's biggest bank, with operations in more than 70 countries. Terms of that deal were undisclosed. (See IBM Inks 8-Year Cloud Deal With BNP Paribas, France's Biggest Bank.)
— Mitch Wagner Executive Editor, Light Reading
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