IBM Q1 Revenues Flat as Systems, Cloud Surge

IBM had a decline in software and services revenue for the first quarter of 2015, but the cloud and systems units soared.

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With a focus on its continued transformation, IBM saw revenue drop and net income rise slightly in its first quarter of 2015.

Big Blue reported Q1 2015 earnings of $19.6 billion, down 12 percent from a year ago. Net income was $2.9 billion, up four percent from the same period a year ago.

IBM experienced declines in both its services and software segments, but had a very strong quarter in its systems hardware unit, where a new System z mainframe shipped during the quarter.

In addition, IBM’s strategic imperatives revenue was up more than 30 percent for the quarter. Cloud revenue was up 60 percent and business analytics revenue was up 12 percent.

"In the first quarter we had a strong start to the year,” said Ginni Rometty, IBM chairman, president and chief executive officer, in a statement. “Our strategic imperatives growth rate accelerated, demonstrating the power of our offerings in these new opportunities and contributing to improved revenue performance. Our focus on higher value through portfolio transformation and investment in key areas of the business drove continued margin expansion.”

Revenues from IBM’s software segment were down 8 percent to $5.2 billion compared with the first quarter of 2014. Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Workforce Solutions and Rational products, were $3.5 billion, down 5 percent versus the first quarter of 2014. Operating systems revenues of $0.4 billion were down 15 percent compared with the prior-year quarter.

IBM's combined services revenue for the quarter was $12.2 billion, down 2 percent year to year. The company ended the quarter with a total services backlog of $121 billion.

“IBM's Q1 results were mostly in line with analysts’ expectations, though the company's performance was hurt by currency issues -- the strengthening dollar's impact on a company with a widely global business and customers,” said Charles King, principal analyst at Pund-IT. “Though middleware revenues were disappointing, there was some good news in hardware, especially System z, which saw positive growth, and Power, where the loss was far narrower than in recent past quarters.”

Revenues for IBM’s Systems Hardware segment totaled $1.7 billion for the quarter, down 23 percent. However, systems revenues were up 30 percent, adjusting for currency and the impact of the divested System x business, from the first quarter of 2014. Revenues from System z mainframe server products increased 118 percent compared with the year-ago period, although they were up 130 percent adjusting for currency. Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), increased 95 percent. Revenues from Power Systems were down 3 percent compared with the 2014 period. Revenues from System Storage decreased 8 percent.

“In March, we shipped the first z13 system and our mainframe revenue more than doubled, on MIPS shipments that were up 95 percent,” said Martin Schroeter, IBM’s CFO, during IBM’s earnings call with analysts. “Power returned to growth, leveraging strong performance in our scale-out systems. All of this is driving our shift to higher value, resulting in a higher margin and supporting targeted investments.”

IBM is continuing its transformation of moving from lower-value commodity businesses to higher-value strategic initiatives.

“We’ve been investing in our strategic imperatives, our solutions that address the opportunities in data, cloud, social, mobile and security,” Schroeter said. “These are high-value solutions. And we’re able to grow at a rate significantly faster than the market because our offerings are highly differentiated and because our core businesses provide the industry perspective and deep insight into how our clients operate.”