IBM's Q2 Earnings Improve, Hardware Continues to Lag

By Darryl K. Taft  |  Posted 2014-07-18 Print this article Print
IBM revenue

“While still down, our hardware year-to-year revenue performance improved  significantly from the first quarter rate, driven by our System z mainframe, System x and storage,” Schroeter said.

“In the second quarter, we made further progress on our transformation,” said Ginni Rometty, IBM chairman, president and chief executive officer, in a statement. “We performed well in our strategic imperatives around cloud, big data and analytics, security and mobile. We will continue to extend and leverage our unique strengths to address the emerging trends in enterprise IT and transform our business, positioning ourselves for growth over the long term.”

Big Blue’s Global Services segment revenues decreased 1 percent to $13.9 billion. Global Technology Services segment revenues decreased 1 percent to $9.4 billion. And Global Business Services segment revenues were down 2 percent to $4.5 billion.

“Services were flat or slightly down, though global financing did well,” King said. “Performance by the software group was solid. System z showed some stability--down just 1 percent compared to a year ago, but that was the one bright spot in the hardware group--a disappointment given that the company announced its first POWER8-based Power Systems solutions during the quarter. I expect Power sales to improve in the second half of the year but the group will bear watching. One bright note; IBM's flash-based systems grew 100 percent year over year."

Geographically, the Americas’ second-quarter revenues were $10.6 billion, a decrease of 1 percent from the 2013 period. Revenues from Europe/Middle East/Africa (EMEA) were up 1 percent at $7.9 billion. Asia-Pacific revenues decreased 9 percent to $5.3 billion. Meanwhile, revenues from the company’s growth markets were down 7 percent and revenues in the BRIC countries — Brazil, Russia, India and China — were down 2 percent.

“In the first quarter, you’ll remember that we announced a number of initiatives that support the shift to our strategic areas of data, cloud, and systems of engagement,” Schroeter said. “These included the launch of Bluemix, which is our cloud platform-as-a service for the enterprise, it included a $1.2 billion investment to globally expand SoftLayer cloud hubs, and it included a $1 billion investment to bring Watson’s cognitive capabilities to the enterprise. In the second quarter, we made progress to implement these initiatives, including in June, Bluemix became generally available, we opened new SoftLayer data centers, we started to ship POWER8, and expanded the OpenPOWER consortium, and we completed substantially all of the divestiture of our customer care business.”

In a research note on the earnings, Andrew Smith, an analyst with Technology Business Research (TBR), wrote, “TBR believes IBM’s current portfolio and strategy will allow it to attract the large enterprise accounts and developer support it needs to sustain momentum. TBR also expects IBM to spend significant resources through R&D and acquisitions in a bid to motivate partners and developers to populate IBM’s cloud ecosystem with applications and solutions for mobile, social and analytics.”

Overall, IBM’s transactional businesses are shifting to higher value as the company evolves its portfolio by investing in capabilities in some areas, while divesting businesses that don’t support IBM’s shift to high value.

“We continue to drive these shifts,” Schroeter said. “We took Bluemix live, are adding new SoftLayer cloud hubs, and we are ramping our investment to commercialize Watson. We’ve introduced POWER8 for big data and cloud at the entry level and are expanding OpenPOWER consortium. And we have committed $3 billion spend to drive chip innovation, while launching an important new partnership with Apple to extend IBM’s position in the enterprise mobile space.”

Moreover, "Like many of its competitors--notably HP--IBM continues to carefully manage its transition away from traditional hardware and services solutions," King said. "The strategy and solutions focus that depends on software-based differentiation appears to be working well. The company should also profit as global economies improve. Best of all, IBM's new and emerging businesses are showing progress, including 50 percent growth in cloud services, developments in Watson-based analytics solutions and services, and mobile efforts--highlighted by this week's Apple partnership.”


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