IBM "de-emphasising" lower-value contracts to focus on cloud

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IBM "de-emphasising" lower-value contracts to focus on cloud

Eight days after completing the largest deal in the company's storied history, IBM posted quarterly financials Wednesday buoyed by growth in the cloud and cognitive systems division that Red Hat will soon be part of.

Big Blue's overall earnings showed revenue slumping for the fourth straight quarter to US$19.2 billion, a year-over-year decline of four percent.

Results for the second quarter that ended 30 June were weighed down by the back-end of a Z mainframe cycle and poor performance in storage but stabilised by the high-value cloud segment that represents IBM's most-strategic priority, IBM CFO Jim Kavanaugh told investors.

IBM's Global Technology Services segment also saw a 4 percent decline in revenue, with declines in both infrastructure and cloud services and technology support services.

Kavanaugh said the company has started "de-emphasising" lower-value contracts and third-party content and focus investments on higher value segments like hybrid cloud.

"As we've said over the last few quarters, we are managing the business for increased margin, profit and cash contribution to better position it for the long-term," Kavanaugh added.

Completing the acquisition of Red Hat in the quarter was an "important milestone for IBM and one that significantly will impact the cloud landscape," Kavanaugh said.

Red Hat's open cloud technologies will add power and flexibility to IBM's innovations and industry expertise, he said.

That combination of technologies will drive what IBM sees as "the next chapter" of cloud adoption, which involves "shifting mission critical work to cloud and optimising everything."

That requires a hybrid, multi-cloud, open approach, he said.

IBM will update its financial forecast in a few weeks with numbers taking into account the Red Hat business, Kavanaugh said.

The Cloud and Cognitive Software business delivered "strong revenue performance" with 5 percent growth to more than US$5.6 billion in sales, Kavanaugh said.

One of the three divisions of that business, Cloud and Data Platforms, was up 7 percent, with broad growth led by "several newer offerings." Kavanaugh highlighted strong hybrid cloud sales that leverage IBM Cloud Private technology built on open source frameworks.

The two other divisions also performed well—cognitive applications were up 5 percent, and transaction processing platforms up 4 percent.

Earnings per share of US$3.17 beat Wall Street's expectations of US$3.07. And revenue came in just as analysts had expected.

With the beat, IBM shares jumped after the bell closed from a close of US$143.07 to a high of US$148.50. But investors did a double take after digesting the financials, and the stock fell hours later to US$140.85 at the time of this publication.

This article originally appeared at

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