SEC investigates IBM’s cloud computing revenues

US Securities and Exchange Commission is conducting an investigation into how IBM reports cloud revenue

US regulatory watchdog Securities and Exchange Commission (SEC) is conducting an investigation into how IBM reports cloud revenue, IBM has disclosed in its quarterly filings to the SEC on Wednesday.

The mainframe and cloud provider said that it learned in May 2013 that the SEC is investigating its cloud computing revenues and that it is “cooperating with the SEC” on the matter.

"IBM's reporting of cloud revenue is the result of a rigorous and disciplined process and we are confident that the information we have provided has been consistently accurate," IBM spokesperson told Computer Weekly.

In the second quarter of 2013, IBM’s Global Services segments, Global Technology Services (GTS) and Global Business Services (GBS), delivered revenue of $14.14bn, a 3.5% decrease from the same quarter last year.

IBM’s second quarter revenues of $24.9bn missed market estimates of $25.39bn 

But the company said that its services segments continued to have good performance in the growth initiatives of Smarter Planet, cloud and business analytics and that it continues to invest to accelerate the shift toward higher value content.

However, its cloud revenues are not known as it does not report its cloud income separately from its services business.

IBM, a traditional mainframe supplier, started investing in cloud computing portfolio and investing in cloud products from 2008 to suit the changing technology landscape.

“In the last five to six years, we have acquired about 1,000 SaaS [software-as-a-service] companies and this indicates our understanding of users’ cloud demands and our commitment to providing cloud services,” Jim Comfort, general manager for cloud development and delivery at IBM told Computer Weekly earlier.

SmartCloud launched

It launched SmartCloud – its enterprise-class cloud computing services for building private, public and hybrid clouds. SmartCloud services can be purchased as self-service or managed services. Earlier this year, it also announced its open cloud architecture and its plans to base all cloud offerings on OpenStack.

Last month, the company acquired Israel-based virtualisation management provider CSL International to extend the “value of IBM's cloud offerings”. This was IBM’s second acquisition in two months.

Prior to that, it acquired SoftLayer Technologies, the world’s largest privately-held cloud computing infrastructure provider for $2bn. With SoftLayer, IBM aimed to accelerate the build-out of its public cloud infrastructure to give clients the broadest choice of cloud offerings to drive business innovation.

The company aims to achieve its objective of reaching $7bn annually in cloud revenue by the end of 2015. 

IBM has not provided any further details about the official SEC’s investigation into its cloud computing business.

The company is also subject to ongoing tax examinations and governmental assessments in various jurisdictions. It is also being investigated by the Polish Central Anti-Corruption Bureau involving allegations of illegal activity by a former IBM Poland employee in connection with sales to the Polish government, according to its SEC filings. IBM said it is cooperating with the SEC and Polish authorities on the matter.

IBM shares were down 0.2% at $195.58 on Wednesday, following the revelations.

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