Originally published by Sramana Mitra on LinkedIn: Turnaround At IBM Shows Some Promise
IBM’s (NYSE: IBM) revenues continued to decline for the seventeenth straight quarter, but the general sentiment is that it seems to be making progress in its strategic turnaround and its stock is trading close to its 52-week high. IBM has been moving away from computer hardware sales and reorganizing its portfolio to focus on “strategic imperatives” like the cloud, analytics, and mobile computing.
IBM’s Financials
IBM’s second quarter revenues declined 3% over the year to $20.2 billion, ahead of analyst expectations of $20.03 billion. EPS of $2.95 was also ahead of the estimates of $2.89, but it was down 23% over the year.
By segment, the strongest growth came from cognitive solutions led by its analytics and cognitive capabilities and security with recent acquisitions providing some lift. Revenues from Cognitive Solutions (including Watson) was $4.7 billion, up 3.5%, Global Business Services was down 2% to $4.3 billion, Technology Services & Cloud Platforms declined 0.5% to $8.9 billion, and Global Financing was down 11.3% to $424 million, while Systems revenues reported the biggest decline of 23.2% to $2 billion.
IBM is continuing to see strong traction from its cloud-based investment strategies. During the quarter, strategic imperatives revenue was up 12% to $8.3 billion. Cloud revenues (public, private and hybrid) for the quarter increased 30% and over the trailing 12 months was $11.6 billion. The annual run rate for cloud as-a-service revenue increased to $6.7 billion from $4.5 billion a year ago. Among other strategic investments, revenues from analytics increased 5%, mobile grew 43%, and security increased 18%. Strategic imperatives revenue over the last 12 months was $30.7 billion, accounting for 38% of IBM’s revenues driven by the growth in cloud. IBM is targeting to grow this segment to $40 billion by 2018.
For the current year, IBM had projected an EPS of at least $13.50 while analysts expect earnings of $13.49. Last quarter, CFO Martin Schroeter had said that he expected the company to produce between 38% and 39% of the full-year profit during the first half. IBM has now generated just over 39% of its full-year earnings guidance in the first half, meeting the target set out. As a result, investors seem more optimistic about its turnaround.
IBM Continues Its Watson and Blockchain Push
IBM has been growing and broadening the reach of Watson with new capabilities, partnerships, and engagements to accelerate adoption. During the second quarter, IBM announced Watson for cyber security, a new cloud-based version of its cognitive security solutions. It also introduced Watson Company Analyzer, which helps companies reduce the time and effort required to collect, digest, and synthesize information for building strategic business relationships and understanding competitive market spaces.