Investors applauded IBM’s second-quarter earnings announcement as the enterprise giant beat expectations on better-than-expected revenues and reaffirmed guidance for the full fiscal year.

IBM stock rose nearly three percent in after-hours trading, capping a rise of more than 30 percent in the company’s share price since the beginning of the year. Revenues were off 2.8 percent to $20.24 billion for the quarter ended June 30 from $20.81 billion a year earlier. That’s still $200 million better than consensus estimates and down from the 4.6 percent decline reported in the first quarter.

More important to customers is that the 38 percent of IBM revenue that the company defines as “strategic imperatives” was up 12 percent year to year. Strategic imperatives include cloud, analytics and what IBM calls “engagement” technologies like collaboration and social media. Revenues in those areas totaled $8.3 billion, up 12 percent year to year. Cloud revenues – which include public, private and hybrid infrastructure – were up 30 percent. IBM’s cloud operations have taken in $11.6 billion over the last 12 months.

Bullish forecast

IBM issued a bullish forecast for the second half, reaffirming guidance of $13.50 of operating earnings per share, but adding that results should be “at least” that. The self-administered medicine IBM took in the first half of the year will begin to pay dividends in the second half, said CFO Martin Schroeder on the earnings call. First-quarter layoffs, which had a significant impact on earnings early in the year, will be a net contributor to earnings in the second half. Other significant drags on first-half performance, such as mainframe product cycles, investments in cloud and cognitive computing technology and acquisitions, are expected to have little to no impact going forward, Schroeder said.

The CFO underlined the difficulties IBM has had to confront as it has effectively overhauled its entire business over the last four quarters. “We’re not only moving into new spaces but creating entirely new markets,” he said.

Much of his prepared  remarks consisted of ticking off items on long list of IBM announcements during the first half. They include the opening of a Bluemix garage in New York City for blockchain experimentation; the addition of more than 30 IBM Digital Design Studios; agreements with major enterprise customers for use of Watson in areas like health care and customer service; and breakthroughs by IBM Research that appear to pave the way toward commercial quantum computers, which not long ago were thought to be impractical to build. IBM’s Quantum Experience cloud experimentation platform generated 158 million Twitter impressions the day it opened, Schroeder said.

One area of strength that might surprise people is security, which is growing at three times the overall market. “We are the number one security software and services provider, and hold leadership positions in 12 of 14 segments,” as measured by Forrester Research Inc., Gartner Inc. and International Data Corp. Schroeder said. Cognitive security based on Watson is proving to be a compelling new offering there, he said.

Revenues from analytics increased five percent, mobile sales jumped 43 percent and security revenue was up a healthy 18 percent. Revenue from system sales continued its steep decline, falling 23.2 percent, although margins improved. Cognitive solutions, which includes enterprise operational software grew 3.5 percent, but cloud revenue within the segment was up 54 percent.

IBM doesn’t break out revenues for its Watson-related sales, but the company has been busy closing new Watson business, including a recent global contract with one of the world’s largest property management firms to outfit 25,000 of its buildings with sensors connected to a Watson-based Internet of Things cognitive platform.

Image via IBM Q2 earnings presentation