IBM’s shares drop as cloud growth fails to keep revenues from falling

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IBM Corp. posted mixed results for its first fiscal quarter today as the 105-year-old tech giant once again reported a decline in its year-on-year revenues.

IBM reported a profit of $2.38 per share on revenues of $18.2 billion. The company’s earnings beat analyst predictions of $2.35 per share, but its total revenue came in slightly below the prediction of $18.4 billion. According to IBM, its earnings per share saw an increase of 1 percent, but its year-on-year revenues fell 3 percent.

Investors weren’t too happy. IBM’s stock price fell by more than 5 percent in after-hours trading.

Nearly all of IBM’s individual segments saw a decline in revenues with the exception of its so-called “strategic imperatives” segment, which includes the company’s cognitive and cloud solutions. Revenues in IBM’s cognitive solutions were particularly resilient primarily thanks to IBM Watson (pictured), and the cognitive segment grew 2.1 percent in the first quarter with revenues of $4.1 billion.

IBM’s strategic imperatives segment continues to account for more and more of the company’s overall business. According to the company, it now comprises 42 percent of IBM’s total revenue, with more than $34 billion in revenues for the last 12 months.

“In the first quarter, both the IBM Cloud and our cognitive solutions again grew strongly, which fueled robust performance in our strategic imperatives,” IBM Chief Executive Ginni Rometty said in a statement. “In addition, we are developing and bringing to market emerging technologies such as blockchain and quantum, revolutionizing how enterprises will tackle complex business problems in the years ahead.”

The company said in its statement that it will continue to focus on expanding its strategic imperatives businesses and investing in long-term opportunities.

‘The same old story’

Today’s report marks 20 consecutive quarters with a decrease in year-over-year revenues for IBM. According to Andrew Bartels, a principal analyst at Forrester Research Inc., these results are not exactly surprising.

“It still is the same old story,” Bartels told SiliconANGLE. “Overall, they’ve got this mix of old stuff and new stuff. The new stuff, which is what they put under their strategic imperatives, is doing relatively well. But the old stuff, which is still two-thirds of revenues, is pretty much flat or actually down.”

Bartels said that while IBM saw respectable earnings from its cognitive and analytics business thanks to Watson, this segment has not grown quickly enough to offset declines in some of the company’s other segments. He also said that the double-digit growth of IBM’s cloud business is less impressive when compared to the stellar growth of competing services like Amazon Web Services or Microsoft Azure.

“Even their strategic imperatives are not hitting it out of the park,” Bartels said. “They are hitting good doubles, but they are not hitting a real home run anywhere in there, and meanwhile the rest of their revenues are slowly flattening or leaking away.”

One reason for IBM’s stagnant growth, according to Bartels, is the company’s focus on doing business with the largest companies in the world. “The largest companies in the world are the ones who are in certain ways struggling,” he said. “They’re not doing terrible, but they’re growing a little faster than the economy, and IBM does not have the same kind of presence with fast-growing startups.”

Bartels did say that he expects IBM’s revenues to start growing again in 2018 when its strategic imperatives account for an even greater percentage of its overall business, but he said that in the short-term, IBM will continue to struggle with its total revenue.

Photo: IBM