IBM Q4 Revenues Down, Strategic Imperatives Up

Though IBM's fourth-quarter 2015 revenues were down, the company's strategic plays including cloud and analytics were way up during the period.

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IBM announced total revenues for the fourth quarter of 2015 of $22.1 billion, down 9 percent from the fourth quarter of 2014; and net income of $4.5 billion, compared with $5.5 billion in the fourth quarter of 2014, down 19 percent.

However, the company made progress on its strategic imperatives, which IBM is counting on to transition the company to higher-value offerings. IBM's strategic imperatives include cloud, analytics, mobile, social and security solutions. Fourth-quarter revenues from the company's strategic imperatives—cloud, analytics and engagement—increased 10 percent year to year.

For the full year, revenues from strategic imperatives increased 17 percent—up 26 percent adjusting for currency and the divested System x business—to $28.9 billion and now represent 35 percent of total IBM consolidated revenue.

"A couple of years ago we laid out our strategic imperatives around big data and analytics, around cloud, and around mobile and security—the areas where our clients are looking to us to help move them to the future," said Martin Schroeter, IBM's senior vice president and chief financial officer, during a call with analysts. "We have said we expect these strategic imperatives to deliver double-digit revenue growth, and in 2015, our performance in our strategic imperatives accelerated. Together, cloud, analytics, mobile, social and security grew 26 percent and delivered $29 billion in revenue. As I mentioned, they now represent 35 percent of IBM, which is up from 22 percent two years ago."

For the full year, total cloud revenues—public, private and hybrid—increased 43 percent (up 57 percent adjusting for currency and the divested System x business) to $10.2 billion. Revenues for cloud delivered as a service—a subset of the total cloud revenue—increased 50 percent to $4.5 billion; and the annual as-a-service run rate increased to $5.3 billion from $3.5 billion in the fourth quarter of 2014. Revenues from business analytics increased 7 percent to $17.9 billion. And, revenues from mobile more than tripled, and those from security increased 5 percent.

"We continue to make significant progress in our transformation to higher value," said Ginni Rometty, IBM chairman, president and CEO, in a statement. "We strengthened our existing portfolio while investing aggressively in new opportunities like Watson Health, Watson Internet of Things and hybrid cloud. As we transform to a cognitive solutions and cloud platform company, we are well positioned to continue delivering greater value to our clients and returning capital to our shareholders."

Indeed, the continuing good news regarding the company's strategic imperatives is evidence of the strength of IBM's strategy in these areas, said Charles King, principal analyst at Pund-IT.

"The growth of its cloud services efforts was especially impressive, validating both its SoftLayer acquisition and its global cloud data center development approach," King said. "As you watch some of IBM's competitors struggle to become viable cloud service players or abandon the space entirely, the company's proactive approach to cloud has been borne out time and again. Plus, with strategic imperatives now delivering over a third of IBM's total revenues, the company seems solidly on the right track."

Schroeter noted that with 57 percent revenue growth over the last year, cloud is now a $10 billion business for IBM.

"This made us the largest cloud provider in 2015, which is what you'd expect, given our extensive relationships in enterprise IT and incumbency in the data center, positioning us to help our clients implement hybrid cloud environments," he proclaimed. "Revenue from our as-a-service offerings increased about 60 percent to four-and-a-half billion dollars for the year, and we exited 2015 with an annual run rate for our as-a-service business of $5.3 billion. The $10 billion also includes $5.6 billion of revenue from our foundational offerings, where we provide software, hardware and services so clients can build their own clouds."