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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.”
IBM Q4 Revenues Down, Strategic Imperatives Up
In addition, with nearly $18 billion of analytics revenue, Schroeter said IBM also is “the largest analytics provider,” and the company will extend that lead by moving into new areas, including Watson Health and Watson Internet of Things.
Looking at the various segments of the company, revenues from the software segment were down 11 percent to $6.8 billion, compared with the fourth quarter of 2014. Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Workforce Solutions and Rational products, were $4.9 billion, down 10 percent year-to-year. Operating systems revenues of $0.5 billion were down 12 percent year-to-year.
“Our software profit performance continues to reflect the revenue trajectory, a higher level of investments in areas like Watson, Watson Health, IoT and Bluemix, and an impact from currency translation,” Schroeter said. “On an annual basis, about 70 percent of our software business is annuity-like, including software-as-a-service, and subscription and support. Our renewal rates are steady, our SaaS business is growing, and our overall annuity revenue grew in the fourth quarter and the full year.”
Revenues from IBM’s Systems Hardware segment totaled $2.4 billion for the quarter, down 1 percent year-to-year. However, revenues from z Systems mainframe server products increased 16 percent compared with the year-ago period. Total delivery of z Systems computing power, as measured in mips, increased 28 percent. Revenues from Power Systems were up 4 percent compared with the 2014 period. And revenues from System Storage decreased 11 percent.
“This was the fourth consecutive quarter of growth in both z Systems and Power,” Schroeter said. “We have continued to deliver innovation to our systems to enable them to run the most contemporary workloads. In fact, about half of our systems segment revenue in 2015 was to address analytics workloads, or hybrid and private clouds. This quarter z Systems revenue was up more than 20 percent. Since the launch of z13 [mainframe] in the first quarter of 2015, we have delivered growth of 35 percent, with strong double-digit growth in every quarter since the launch. z13 was contemporized for the workloads around mobile, hybrid cloud and analytics, which continues to resonate well with our existing customers, and brings new customers to the platform. For the year, we added 50 new clients across 25 countries.”
For its services business, IBM’s Global Technology Services segment revenues were down 7 percent to $8.1 billion. Big Blue’s Global Business Services segment revenues were down 10 percent to $4.3 billion. Yet, the estimated services backlog as of December 31 was $121 billion, up 1 percent year-to-year, adjusting for currency.
“We ended the fourth quarter with a services backlog of $121 billion, which grew for the third consecutive quarter,” Schroeter said. “We continue to see momentum in our services offerings that modernize our clients’ IT systems and move their operations into the cloud-based mobile world.”
Moreover, Schroeter said that since IBM announced its enterprise mobility partnership with Apple, Big Blue has generated more than a billion dollars in services signings from the program.
Yet, “things could obviously be better in IBM’s traditional businesses, though there were some bright points,” King noted. “In particular, I’d point to the solid performance of both the z Systems mainframe and Power Systems groups. It’s also worth considering the effects that the strong U.S. dollar has had on IBM’s performance. IBM certainly isn’t alone in that regard—other global vendors are feeling similar pain. But it’s notable that one effect of an increasingly connected world is that the suffering in once-dynamic economies can inflict pain on businesses thousands of miles away.”