IBM Emerging as Cognitive, Cloud Power Amid Transformation

By Darryl K. Taft  |  Posted 2016-04-20 Print this article Print
IBM initiatives

For his part, Schroeter argued that IBM has some key "proof points" that it is making progress on its transition. In addition to citing the success of the combined strategic imperatives, Schroeter called out specific components, noting that in the first quarter, IBM's total cloud revenue grew 36 percent to $2.6 billion, with the as-a-Service components growing 46 percent. IBM's annual run rate for the "as-a-Service" revenue is now $5.4 billion. And IBM's analytics revenue grew 9 percent on a large base—it was an $18 billion business last year. Also mobile and security each posted strong double-digit growth, he said.

Moreover, in the first quarter IBM's cloud revenue reached $10.8 billion over the trailing 12 months, and the company continues to make strides to globalize its cloud portfolio through new investments, innovations, clients, acquisitions and partnerships.

Over the last few months, IBM stepped up its efforts to accelerate the growth of its cloud footprint globally as it focuses on higher value. For instance, in January IBM formed a Cloud Video Services Unit, and at this week's NAB Show in Las Vegas that unit announced new innovations and client wins including Comic-Con HQ, AOL, Canadian Broadcasting Corporation and Broadway Video.

In addition, during the quarter, IBM announced a new cloud data center in South Africa in partnership with Gijima and Vodacom, expanding Big Blue's cloud footprint to over 46 data centers across six continents.

Moreover, IBM has cloud enabled its entire portfolio of software and recently delivered 50 new cloud solutions and services across the Internet of Things (IoT), blockchain, Watson, big data and more. The company also doubled down on developers, bringing the popular Swift programming language to the cloud and joining forces with GitHub to help developers create cloud-based apps for the enterprise.

So analysts see IBM moving in the right direction, but is it enough?

Jennifer Hamel, an analyst with Technology Business Research, sees light at the end of the tunnel.

"IBM's transition to higher-value strategic imperatives, i.e., cloud, analytics, mobility, social and security (CAMSS) progressed in 1Q16, as the company continues to shed its traditional IT services baggage in favor of industry-focused, consulting-driven cognitive solutions," she said.

Further, Hamel noted that traditional ERP implementations and IT outsourcing remained albatrosses preventing revenue growth in IBM’s Global Business Services (GBS) and Global Technology Services (GTS) units.

"However, total services revenue performance continued to improve in 1Q16, declining only 2.3 percent year-to-year, the smallest year-to-year decline 2013, signaling growth in strategic imperatives is coming closer to replacing losses in traditional services areas," she said.

Charles King, principal analyst at Pund-IT, said IBM's new reporting structure is going to take some getting used to, but he noted that the technologies that populate those segments are so deeply integrated into a growing range of IBM solutions that breaking out their discrete financial performance would be difficult.

"I find it remarkable that IBM has been able grow its new strategic businesses and profits despite generating lower overall revenues," King said.

This is largely due to shifts in the company's organization, including some headcount reductions but also by significant realignments of its financial priorities, he said.

"As a result, IBM delivered GAAP [Generally Accepted Accounting Principles] diluted earnings of $2.09 per share on $18.7 billion in total revenues," noted King. "Compare that to HPE's recent Q1 2016 financial announcement which showed the newly realigned company delivering $12.7B in total revenues but just $0.15 in GAAP diluted earnings per share."


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