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Nearly everything about IBM Corp.’s business improved in its first quarter, but nothing took investors’ breath away.

As expected, IBM logged its second consecutive quarter of revenue growth after 22 straight quarters of decline, but the growth was mostly the result of exchange rate fluctuations. Revenue and earnings per share both beat analysts’ expectations, but the company didn’t raise its full-year forecast, instead reaffirming guidance of a profit per share of $13.80 in 2018 against consensus estimates of $13.83.

That appeared to disappoint investors, who sent shares down more than 5 percent in after-hours trading. Update: Investors weren’t any happier in regular trading Wednesday, as shares were falling more than 7 percent in midday trading. “The lack of revenue growth … may not be a backbreaker, but we expect IBM‘s perplexing declaration that gross margin ‘stabilization’ has arrived … to frustrate investors,” Barclays Research analyst Mark Moskowitz wrote in a note to clients.

Big Blue’s first-quarter revenue of $19.1 billion was about $300 million better than forecasts and up 5 percent from a year earlier. However, sales were flat after adjusting for exchange rates. A profit of $2.45 a share slightly beat consensus estimates of $2.42.

Still, at least one analyst was more positive than investors. “IBM went years without growth and the company just popped off another growth quarter before currency adjustments,” said Patrick Moorhead, president and principal analyst at Moor Insights & Strategy.

In any case, cloud revenues fared better, up 14 percent from a year ago, to $4.2 billion. But that’s well behind the 40 percent-plus growth rates that Amazon.com Inc.’s Amazon Web Services Inc. division has been logging and the near;y triple-digit growth of Microsoft Corp.’s Azure unit.

On the whole, IBM delivered where it said it would deliver, but didn’t blow the doors off any expectations in particular. Revenue for its closely watched cognitive solutions business, which includes security, analytics and vertical platforms, rose 6 percent. Cognitive systems is by far the company’s most profitable operation, with gross margins of more than 76 percent.

The comparatively low-margin global business services unit’s sales climbed 4 percent. And systems sales continued to enjoy the afterglow of a new mainframe line, turning in 8 percent growth on a 54 percent spike in mainframe revenue.

“The Systems group did very well, and when you think about it, this is a group you wouldn’t expect any growth and margin from,” said Moorhead. “Yet it grew revenue 8 percent at a 43.7 percent gross margin on the back of Power and Z,” its server and mainframe lines, respectively.

However, in constant-currency terms, the growth picture was more muted. For example, currency-adjusted revenue growth in cognitive solutions was just 2 percent, while global business services actually shrank.

For investors looking for a growth story, the good news was that IBM’s “strategic imperatives” of analytics, security, cloud and cognitive products and services made up 47 percent of revenues, up from 46 percent a year earlier. “IBM is now a cognitive solutions and cloud platforms company,” said Chief Financial Officer James J. Kavanaugh, who handled the analysts’ call solo in his first quarter in his new role.

Strategic-imperatives revenue rose 15 percent in the quarter, or 10 percent when adjusted for constant currency. Particular bright spots were mobile and security, with 14 percent and 60 percent growth, respectively, off small bases.

However, IBM continues to struggle with analytics, the largest of its strategic imperatives. Quarterly analytics revenue of $4.8 billion crept up an anemic 4 percent, coming on top of 6 percent growth in the previous quarter that IBM’s former CFO termed “disappointing.”

Storage hardware sales fell after four straight quarters of growth, driven by competition and pricing pressures. “We were disappointed by our storage performance,” Kavanaugh said, but he predicted improvement on the horizon.

“It’s a battle on market share, but we feel comfortable we have new offerings coming later in the year and we’ve already taken significant actions on routes to market,” he said. IBM did see “strong growth” in software-defined and cloud storage, he added.

However, growth hasn’t been IBM’s story for several years. In the process of weaning itself off hardware sales, divesting its chip business and staking out a defensible position in the cloud, it has exited a lot of low-margin businesses and focused on stabilizing for growth. Although this quarter’s results didn’t give investors reasons to cheer, they reinforced the image of company that’s in sound financial condition with options for where it goes from here.

“Our balance sheet is strong, we have the flexibility we need and with a strong quarter and cash flow, we are on track for the year,” Kavanaugh said.

With reporting from Robert Hof

Image: Unsplash