IBM beats estimates with growth in strategic areas

IBM claims its transformation efforts are working, but share prices dropped on news of a fall in revenue for the 15th consecutive quarter

IBM has reported fourth quarter profits of $4.7bn and revenues of $22.1bn, driven by growth in strategic business areas.

Although the figures just beat analysts’ expectations, revenue was down 9% and profits dropped 19% compared with the same period the year before.

Profit for the full year of $14.7bn was down 12% on the previous year and revenue of $81.7bn was also down 12%.

Investors were unimpressed, and IBM shares were down around 3.5% in after hours trade, according to Business Insider.

Putting a positive spin on the results, IBM chief financial officer Martin Schroeter highlighted the growth in the strategic areas of big data and analytics, cloud, mobile and security.

He said transformation efforts to focus on these areas were reflected in the drop revenues for the fourth quarter.

IBM continues to transform its products and services portfolio to address these areas, which the company calls its “strategic imperatives”.

“We expect these strategic imperatives to deliver double-digit revenue growth and, in 2015, our performance in our strategic imperatives accelerated,” Schroeter said in a conference call.

“Together, cloud, analytics, mobile, social and security grew 26% and delivered $29bn in revenue,” he said, adding that they now represent 35% of IBM revenue, up from 22% two years ago.

Read more about IBM

Schroeter also highlighted a 57% growth in revenue for its IBM’s cloud services, which is now a $10bn business.

“This made us the largest cloud provider in 2015, which is what you’d expect, given our extensive relationships in enterprise IT and incumbency in the datacentre,” he said.

Analysts said that, although the performance of the cloud division shows IBM is making progress, the gains are not yet big enough to offset the declines in the hardware, software and services divisions, reported the Wall Street Journal.

IBM’s global technology revenue declined 7.1% to $8.13bn; software revenue fell 11% to $6.77bn; systems hardware revenue fell 1.4% to $2.37bn; and global business services revenue fell 9.9% to $4.3bn.

However, Schroeter revealed that IBM’s partnership with Apple, to sell IBM’s MobileFirst apps for iOS, has generated over $1bn in business since it was announced in July 2014.

“These apps allow our clients to securely access their most critical data and processes, so that they can redesign workflows and drive productivity,” he said.

Schroeter said the strong dollar continued to be a “headwind” which he believed had affected IBM’s reported revenue by half a billion dollars, and revenue by over $7bn.

“We estimate it impacted our profit growth by about $300n in the fourth quarter and over a billion dollars for the year,” he said.

Analysts said IBM faces a number of headwinds in 2016, with Amazon, Google and Microsoft expected to cut prices of their cloud computing services, reports Information Management.

IBM also faces more competition and a possible price war in legacy IT services, analysts said, as businesses increasingly move to cloud applications.

Read more on Cloud computing services