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IBM admits poor storage results but promises to do better

IBM’s first-quarter 2018 results shows failings in its storage business, while cognitive computing via Watson remains its main growth engine

IBM has reported first-quarter 2018 revenue of $19.1bn, up 5% from the equivalent period in 2017, driven mainly by big tax breaks in the US, the strong US dollar and cognitive computing.

The company reported 6% growth in Cognitive Solutions, 4% in Global Business Services, 5% in Technology Services and Cloud Platforms, and 8% in Systems.

Growth in cognitive computing came mainly from the company’s industry platforms, security products and analytics.

Systems revenue was up 4%, with growth in IBM’s Z and Power series of server systems. But storage hardware revenue declined in the quarter.

When asked about the company’s poor results in storage, Jim Kavanaugh, senior vice-president and CFO, said they were disappointing.

In a transcript of the earnings call posted on the Seeking Alpha financial blogging website, Kavanaugh said: “Our 1Q fell below our own expectations, but I’ll tell you we have a great team with a proven track record. This is the same team that has proven that they’ve revitalised the portfolio in the past, took market share for four consecutive quarters and now we had an impact in the first quarter predominantly just due to execution of transactions at the end of the quarter.”

Kavanaugh said the market in storage remains very competitive and very aggressive. “It is a battle right now on market share, but we feel comfortable that we’ve got new portfolio offerings that are coming out later in the year, as we get through the latter half of second quarter and then to the third quarter and fourth quarter,” he said.

IBM’s cloud revenue grew to $17.7bn over the last year, a 22% increase. Cloud growth in the quarter was driven by its software-as-a-service offerings, said Kavanaugh.

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Looking more closely at the company’s cognitive computing strategy, he said Watson Financial Services had another strong quarter, led by Promontory’s Risk and Regulatory business, as well as its Financial Crimes portfolio.

“We are seeing a real synergy opportunity in combining Promontory’s industry expertise with our AI [artificial intelligence] technologies,” he said. “Watson remains the AI platform for business, with continued strong demand for our offerings, particularly around virtual assistants, where conversation service usage increased by triple digits year-to-year.”

In the first quarter, IBM introduced several new AI-based products, including the recently announced Watson Assistant. Kavanaugh pointed to Orange Bank and AutoDesk as two examples of early adopters of this technology.

Commenting on the results, Berenberg analyst Josep Bori said: “At first sight, IBM’s ‘strategic imperatives’ (analytics, cloud, mobile, social) experienced a deterioration in growth, as they were up 10% year over year versus 14% in Q4. Looking beneath the surface, however, excluding the volatile Systems, they grew 19%, a pace not seen for six quarters.”

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