IBM Sees Q2 Cloud Earnings Soar as Overall Revenue Declines
"IBM remains in the middle of its long transition toward higher-value services, with weakness in commoditized ERP implementations continuing to offset success in strategic imperatives, i.e., cloud, analytics, mobility, social and security [CAMSS] solutions," said Jennifer Hamel, an analyst with Technology Business Research. "IBM secured 22 signings over $100 million during the quarter, signaling that ongoing investment in global expansion, consulting-led transformation solutions and high-value skill sets resonate with clients. Although IBM continues to progress toward a more flexible engagement model built around driving business outcomes rather than technology sales, services revenue and margin growth remains a long-term [beyond 2015] proposition." IBM said the annual run rate for cloud delivered as a service—a subset of the total cloud revenues—increased to $4.5 billion from $2.8 billion in the second quarter of 2014. Meanwhile, revenues from business analytics increased more than 10 percent year-to-date. In addition, revenues from mobile more than quadrupled and social revenues increased more than 30 percent year-to-date. "Not surprisingly, the company's strategic imperatives, particularly cloud and analytics, delivered the most cheerful news," King said. "Cloud did particularly well, overall, with total revenues up 50-plus percent year to date—or over 70 percent adjusted for currency and the System x divestiture—and analytics revenues were up 10 percent year-to-date. Both mobile and social also showed strong growth year-to-date though their revenues are modest compared with the more mature cloud and analytics businesses." However, revenues from the typically strong software segment were disappointing. In the latest quarter, IBM's software revenues fell 10 percent to $5.8 billion compared with the second quarter of 2014. Revenues from IBM's key middleware products, which include WebSphere, Information Management, Tivoli, Workforce Solutions and Rational products, declined $4 billion, down 7 percent year-to-year. Operating systems revenues of $400 million showed a 17 percent decline year-to-year.
Hardware fared even worse. Revenues from IBM's Systems Hardware segment totaled $2.1 billion for the quarter, down 32 percent year-to-year. However, on the bright side, revenues from z Systems mainframe server products increased 9 percent compared with the year-ago period. Total delivery of z Systems computing power, as measured in MIPS (millions of instructions per second), increased 24 percent. Revenues from Power Systems dropped 1 percent compared with the 2014 period. And revenues from System Storage decreased 10 percent.