IBM Shows Positive Revenue Growth for First Time in Six Years

In its Q4 earnings report, Big Blue showed positive revenue for the first time in 23 quarters and may have previewed continued growth well into the new year.

IBM.Watson

Back in October, IBM issued a third-quarter earnings report that, despite a slip in revenue, still exceeded Wall Street analysts' estimates, suggesting that the venerable IT giant may be returning to revenue growth after five-and-half years of flat results and declines.

On Jan. 18, that suggestion looked even more prescient. In its Q4 earnings report, Big Blue showed positive revenue for the first time in 23 quarters and may have previewed continued growth well into the new year.

The last time IBM reported revenue growth from a prior year was in Q1 2012, which was Ginni Rometty's first as CEO.  

Despite the good overall news, the stock fell as much as 4.8 percent to $161 in extended trading.

Revenue rose 3.6 percent to $22.54 billion from a year ago, compared to the analysts’ average estimate of $22.06 billion. Net income for operations was $4.8 billion, up 1 percent year over year.

Earnings, excluding some items, were $5.18 a share in the period ended Dec. 31, compared with the average analyst estimate of $5.17.

IBM was right on target with analysts on share growth for the full year, coming in a mere one cent short of the average analyst expectation of $13.81.

The company took a one-time charge of $5.5 billion in Q4 as a result of the new U.S. tax law.

What was most promising about the earnings report is that IBM is now showing through increased revenue the major strides it has made into new-generation IT segments.

For example, IBM reported Q4 sales totaling $11.1 billion in so-called “strategic imperatives,” which include products and services in cloud services, big data and analytics, security and mobility applications. “Strategic imperatives” was up a solid 17 percent in revenue from last year.

Interestingly, a substantial portion of this growth is coming from an old-school sector that is busy being refreshed: mainframe servers for data centers. Virtually all data centers have at least one mainframe—and mostly from IBM—to handle large-scale transactions, such as banking transactions, customer billing and records and loan applications.

In the current trend of digital transformation, these mainframes are being upgraded in both hardware and software, and IBM is at center stage for that business with its System Z franchise.

Moor Insights Principal Analyst Patrick Moorhead said the new-gen business upward-and-to-the-right movement is the key takeaway from the Jan. 18 report.

"IBM broke its streak of 22 quarters of lack of revenue growth, but I was never focused on that, because the company drives a lot of legacy technology,” Moorhead told eWEEK in a media advisory. “What I am interested in with IBM is its ‘strategic imperatives’ which includes cloud, analytics and mobility. Strategic imperatives grew 17 percent in the quarter and cloud revenue grew 30 percent in the same period. Even more surprising was that systems, including Z mainframes and power systems were up 32 percent. 

“While one data point doesn't make a trend, the movement back to overall company growth and big cloud and strategic imperatives growth give the company momentum going into 2018."

Rometty has set a goal for IBM to reach $40 billion in strategic imperative revenue this calendar year.

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor of Features & Analysis at eWEEK, responsible in large part for the publication's coverage areas. In his 13 years and more than 4,000 articles at eWEEK, he...