IBM reports another drop in revenue, growth in cloud

IBM Corp. reported another drop in revenue — the 15th straight quarter, although its fourth-quarter earnings were slightly better than Wall Street expected thanks to big strides made in ventures like cloud and analytics.

Big Blue reported $22.06 billion in sales, down 8.5 percent from the same period a year earlier. Net income fell almost 19 percent to $4.46 billion.
But could things be turning around for the global tech giant?

IBM beat earnings consensus for the fourth quarter of 2015. The company’s earnings adjusted for one-time gains and costs were $4.84 per share. Analysts surveyed by Zacks Investment Research were projecting adjusted earnings of $4.76 per share, on revenue of $22.23 billion.

IBM continued to show declines in revenue, although some of that came as IBM has sold off business units that produced microprocessors and computer servers, which contributed revenue but had struggled for growth and profit in recent years.

The IBM stock price Wednesday morning was down about $7.50 in pre-market trading to about $120 -- but the Dow Jones Industrial Average futures were sharply lower overall as a general contraction in economic markets worldwide has taken hold since the new year began. The earnings report came Tuesday after the market closed.

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CEO Ginni Rometty has said the key to transformation requires investing in newer areas like cloud computing and selling off underperforming segments like software and microelectronics manufacturing. That included the chip business that was transferred July 1 to GlobalFoundries along with a $1.5 billion and 2,000 workers at the East Fishkill plan that became employees there.

"We continue to make significant progress in our transformation to higher value. In 2015, our strategic imperatives of cloud, analytics, mobile, social and security grew 26 percent to $29 billion and now represent 35 percent of our total revenue," said Ginni Rometty, IBM chairman, president and chief executive officer. "We strengthened our existing portfolio while investing aggressively in new opportunities like Watson Health, Watson Internet of Things and hybrid cloud. As we transform to a cognitive solutions and cloud platform company, we are well positioned to continue delivering greater value to our clients and returning capital to our shareholders."

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IBM said Tuesday that mainframe computers, like those made in Poughkeepsie and around the world, are solid. IBM boasted healthy sales of the latest z13 model in 2015.

“(We’ve had a) successful mainframe cycle,” Chief Financial Officer Martin Schroeter said in the quarterly announcement Tuesday.

That's a good sign for Poughkeepsie, home base for mainframes, and home to several thousand IBM workers and more people at supporting companies.

Revenues from the Systems Hardware segment totaled $2.4 billion for the fourth quarter, down 1 percent year to year, according to IBM. However, revenue from z Systems mainframe server products increased 16 percent compared with the year-ago period. Total delivery of z Systems computing power, as measured in millions of instructions per second, increased 28 percent. Revenue from Power Systems were up 4 percent compared with the 2014 period, according to the company.

"The Power team has done a wonderful job of transforming a business," Schroeter said.

In terms of jobs, Schroeter did not discuss potential cuts or transitions in 2016, but said: "We continue to remix our skills" as new business comes in.

The questions remains whether IBM can successfully shift focus from its weakening businesses like software and microelectronics to more profitable businesses, such as cloud and analytics. When it comes to investing in new technologies, or what IBM calls “strategic imperatives,” the company is seeing big gains.

How other segments performed:

• Revenue from the Software segment was down 11 percent to $6.8 billion compared with the fourth quarter of 2014.
• Global Financing segment revenues decreased 15 percent in the fourth quarter at $0.5 billion.
• Global Technology Services segment revenues were down 7 percent to $8.1 billion. 

IBM’s fourth-quarter earnings reported on Tuesday outdid estimates thanks to the help of ventures like cloud and analytics, which have grown to represent more than a third of the company's total revenue, Schroeter said.

That’s up from 22 percent two years ago.

“We remain confident in our strategy and our ability to execute,” Schroeter said.

The company's cloud, analytics, mobile, social and security grew in 2015, Schroeter said. IBM's cloud revenue grew the most; increasing 43 percent for the year to $10.2 billion. That made it the largest cloud provider in 2015, Schroeter said.

“This is a good example of how we can transform ourselves,” Schroeter said.

Amanda J. Purcell: apurcell@poughkeepsiejournal.com; 845-437-4807; Twitter: @amandajpurcell

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