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IBM’s growth in strategic areas helps beat revenue expectations

IBM continues to bet on strategic businesses such as cloud, which delivered 30% growth in the second quarter despite an overall revenue decline for the period of 3% compared with 2015

Growth in strategic businesses such as cloud, analytics and mobile has helped IBM beat analysts’ expectations for second quarter earnings despite overall declines.

Big Blue reported revenue of $20.2bn, which was more than $200m higher than analysts’ forecast, but down 3% compared with the same period a year ago and down for the 17th quarter in a row.

Net income was down 29% compared with a year ago to $2.5bn, but IBM reported revenue growth of 12% in its “strategic imperatives” businesses to $8.3bn for the quarter.

Strategic imperatives revenue of $30.7bn over the past 12 months represents 38% of IBM revenue, the company said.

IBM’s cloud business revenue alone was $3.4bn, representing a 30% increase compared with the second quarter of 2015. Cloud revenue for the past year was $11.6bn, IBM said.

Revenues from analytics increased 5% (or 4% adjusting for currency), while revenues from mobile increased 43% and revenues from security increased 18%.

The news was well received by investors and IBM stock rose 2.5% after-hours trading, but is still undervalued according to investment analyst Bob Ciura.

“Future returns will be fuelled by continued growth in higher-value segments, and the ongoing restructuring of the business model around cloud, mobile, data and security,” he wrote in Seeking Alpha.

Read more about IBM Watson

Ginni Rometty, IBM chairman, president and chief executive officer, said the company continues to establish itself as the leading “cognitive solutions and cloud platform” company. 

“In doing so, IBM is pioneering new business opportunities beyond the traditional IT marketplace,” she said. 

Rometty said the growth in strategic imperatives was driven by innovations in areas such as analytics, security, cloud video services and Watson Health, all powered by the IBM Cloud.

“We continue to invest for growth with recent breakthroughs in quantum computing, internet of things and blockchain solutions for the IBM Cloud,” she said.

Read more about IBM's cloud strategy

However, IBM’s systems revenue was down 23% in the quarter to  $2bn, while revenue for its Global Business Services, including consulting, global process services and application management, was down 2% or 2.5% adjusting for currency to $4.3bn.

Revenue for the company’s z Systems mainframes was down 40% compared with the same period a year ago.

“In the first half of 2016, we grew our research and development investment, closed 11 acquisitions for more than $5bn and invested nearly $2bn in capital expenditures,” said Martin Schroeter, IBM senior vice-president and chief financial officer.

“We did this while also returning more than $4bn to shareholders through dividends and gross share repurchases. These investments are key in helping us build new markets and maintain our leadership in enterprise IT,” he said.

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