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Though IBM saw its cloud revenue grow by more than 70 percent in the second quarter of 2015, the company also experienced declines in both revenues and net income over the quarter as it continues to shift its focus to higher value business.
IBM’s second-quarter net income was $3.5 billion, down 17 percent from $4.3 billion in the second quarter of 2014. Total second-quarter revenues of $20.8 billion declined 13 percent from a year earlier. However, IBM said revenues were down only 1 percent, adjusting for currency and the divested System x business.
“It’s fair to say that IBM had a challenging quarter in which current pain was not entirely balanced by future promise,” said Charles King, principal analyst with Pund-IT. “But a significant amount of the company’s suffering was also impacted by its position as a truly global IT vendor. Weakness in once-promising regions, including Africa, Asia and the BRIC [Brazil, Russia, India and China] countries placed additional strain on IBM’s finances, as did a strengthening dollar and U.S. economy.”
“Our results for the first half of 2015 demonstrate that we continue to transform our business to higher value and return value to shareholders,” Ginni Rometty, IBM chairman, president and CEO, said in a statement. “We expanded margins, continued to innovate across our portfolio and delivered strong growth in our strategic imperatives of cloud, analytics and engagement, which are becoming a significant part of our business.”
Big Blue said revenues from the company’s strategic imperatives—cloud, analytics, and engagement—increased more than 20 percent year-to-date. Indeed, the company’s total cloud revenues increased more than 50 percent, or more than 70 percent adjusting for currency and the divested System x business, IBM said. Over the last 12 months, IBM has seen cloud revenue of $8.7 billion.
“The market continues to evolve beyond pure infrastructure toward higher-value process-data and analytics-as-a-service engagements, in the same way the Internet has evolved from browsing to a full transactional business platform,” said Martin Schroeter, senior vice president and chief financial officer at IBM. “Our clients are finding value in the combination of public, private and hybrid implementations we’re able to provide.”
Among the key cloud-related developments for IBM in the second quarter were Box and IBM announcing a strategic alliance to bring together Box’s cloud content collaboration platform with IBM’s analytics, security and cloud technologies. By adopting IBM Cloud, Box aims to expand its global footprint and also enable developers to integrate Box API’s into enterprise apps and services. IBM also announced a strategic partnership with Capgemini Sogeti to bring the IBM’s Bluemix cloud development platform to thousands of developers across 15 countries, helping build hybrid cloud applications across public, private and hybrid infrastructures.
IBM Sees Q2 Cloud Earnings Soar as Overall Revenue Declines
“IBM remains in the middle of its long transition toward higher-value services, with weakness in commoditized ERP implementations continuing to offset success in strategic imperatives, i.e., cloud, analytics, mobility, social and security [CAMSS] solutions,” said Jennifer Hamel, an analyst with Technology Business Research. “IBM secured 22 signings over $100 million during the quarter, signaling that ongoing investment in global expansion, consulting-led transformation solutions and high-value skill sets resonate with clients. Although IBM continues to progress toward a more flexible engagement model built around driving business outcomes rather than technology sales, services revenue and margin growth remains a long-term [beyond 2015] proposition.”
IBM said the annual run rate for cloud delivered as a service—a subset of the total cloud revenues—increased to $4.5 billion from $2.8 billion in the second quarter of 2014. Meanwhile, revenues from business analytics increased more than 10 percent year-to-date. In addition, revenues from mobile more than quadrupled and social revenues increased more than 30 percent year-to-date.
“Not surprisingly, the company’s strategic imperatives, particularly cloud and analytics, delivered the most cheerful news,” King said. “Cloud did particularly well, overall, with total revenues up 50-plus percent year to date—or over 70 percent adjusted for currency and the System x divestiture—and analytics revenues were up 10 percent year-to-date. Both mobile and social also showed strong growth year-to-date though their revenues are modest compared with the more mature cloud and analytics businesses.”
However, revenues from the typically strong software segment were disappointing. In the latest quarter, IBM’s software revenues fell 10 percent to $5.8 billion compared with the second quarter of 2014. Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Workforce Solutions and Rational products, declined $4 billion, down 7 percent year-to-year. Operating systems revenues of $400 million showed a 17 percent decline year-to-year.
Hardware fared even worse. Revenues from IBM’s Systems Hardware segment totaled $2.1 billion for the quarter, down 32 percent year-to-year. However, on the bright side, revenues from z Systems mainframe server products increased 9 percent compared with the year-ago period. Total delivery of z Systems computing power, as measured in MIPS (millions of instructions per second), increased 24 percent. Revenues from Power Systems dropped 1 percent compared with the 2014 period. And revenues from System Storage decreased 10 percent.