Four things we learned from IBM's results
We've sifted through IBM's Q3 earnings and picked out the key takeaways, as light appears at the end of the tunnel
IBM has recorded its twenty second consecutive quarter of revenue decline (albeit just), after its Q3 sales dropped 0.4 per cent to $19.15bn. Gross profit declined by 2.4 per cent to $8.8bn. We've picked out the top four points from the financial report and the subsequent earnings call, transcribed by Seeking Alpha.
Consecutive losses hit 22 quarters Big Blue has now not reported a quarter of growth for five and a half years, but it came close in Q3, seeing a decline of 0.4 per cent - which CFO Martin Schroeter referred to as "roughly flat".
IBM's Global Business Services division; Technology Services and Cloud Platform division; and Global Financing division all saw year-on-year declines, with the Cognitive Solutions and Systems divisions the only two to see growth.
As has become routine, the UK was picked out as a problem child - but where it was usually grouped with Germany, this time it was out in the cold on its own.
"We had year-to-year growth in Germany, France, Italy and Spain, mitigated by declines in the UK," Schroeter said.
By CRN's calculations (and those of thisdayinmusic.com) IBM has not reported a growth quarter since Carly Rae Jepsen was top of the UK singles charts with Call me Maybe.
But there was cause for optimism…
A revival could be imminent
Despite the decline IBM's share price rose around five per cent after the results were released, after Schroeter said the vendor expects to see its revenue grow between $2.8bn and $2.9bn in Q4, compared to Q3.
If this is the case IBM's revenue would grow 1.4 per cent on same quarter in 2016, returning it to growth for the first time since 2012.
IBM said the growth will come from what it dubs ‘strategic imperatives' - the likes of artificial intelligence and cloud - but also expects results to be propped up by its mainframe business.
Four things we learned from IBM's results
We've sifted through IBM's Q3 earnings and picked out the key takeaways, as light appears at the end of the tunnel
Mainframes remain key...
The Z14 mainframe was only available for the last two weeks of Q3, but still had enough time to make a significant impact on the results.
Schroeter said that he expects the Z14's impact to continue into Q4 results, but analysts were concerned that the hardware cycle in the mainframe business could cause problems further down the line, when sales flatten out.
In response, Schroeter said: "From a mainframe perspective and we've talked about this in the past, the hardware part of the cycle is quite profound.
"We spend a lot of time explaining what we expect to see on the hardware side. The software side is not as tied to a cycle. The software side [is] obviously tied to the platform, but the cycle for software does not coincide [and is not] tied in any way to the hardware cycle."
…but cloud and services are growing Despite the Z14 stealing the show, IBM remains optimistic on the future performance of its strategic imperative components.
Cloud revenue was up 20 per cent year on year and now represents 20 per cent of overall revenue, while strategic imperative revenue now accounts for around 45 per cent of revenue.
"It's also [the] software mix that helped in the quarter so I wouldn't attribute it all the mainframe," Schroeter said.
"We've been focused on the productivity in our services business so there are multiple contributors coming out of the third [quarter] which will also drive in the fourth some improvement.
"Our margins in strategic imperatives, this is across IBM, remain higher than the margins in outside, if you will, the strategic imperative revenue streams.
"As we've always said, that's a good indication that the future is obviously better than the past."