IBM Q2 Results Disappoint As Cloud Sales Decline


Sales at IBM fall for the 21st quarter, as heavy investments in AI and cloud fails to make good on legacy decline

The scale of the task ahead for IBM’s Ginni Rometty is clear after Big Blue disappointed Wall Street with its weak quarterly results.

The results revealed a decline in both profits and sales, and matters were made even worse by the fact that revenues from its cloud division also declined in the second quarter.

IBM has been banking heavily on its cloud, artificial intelligence, cyber security and analytics services to make up the ongoing decline in its legacy hardware and software business.

IBM CEO Rometty

Depressing Reading

But this has not helped Big Blue during the past quarter. For the three months ending 30 June, IBM posted a net profit down 7 percent at $2.3bn (£1.8bn), from $2.5bn (£1.9bn) a year earlier.

Sales were also down 4.7 percent at $19.3bn (£14.8bn) from $20.2bn (£15.5bn) a year ago. This is now the 21st quarterly revenue decline at IBM and is the steepest fall in five quarters.

Wall Street was not impressed, as analysts on average had expected revenue of $19.5bn (£14.9bn), according to Thomson Reuters.

As a result, IBM’s shares reportedly fell 3 percent to $149.15 (£114) in after-market trading.

That said, it is worth noting that IBM is still profitable despite the declines, but some further digging into IBM’s results reveal a worrying development.

IBM’s technology services and cloud platforms division (its largest unit) fell 5.1 percent to $8.41bn (£6.4bn). Analysts had been expecting on average $8.58bn (£6.6bn).

The bad news continued into IBM’s other units.

The ‘Cognitive Solutions’ division saw a revenue decline to $4.5bn (£3.5bn) from $4.7bn (£3.6bn); revenues at Global Business Services fell to $4.1bn (£3.1bn) from $4.2bn (£3.2bn); revenue at the Systems unit fell to $1.7bn (£1.3bn) from $1.9bn (£1.5bn); and revenue at IBM’s Global Financing unit fell to $415m (£318m) from $424m (£325m).

Despite the depressing results, IBM chairman, president and chief executive officer Ginni Rometty tried to put a positive spin on it.

“In the second quarter, we strengthened our position as the enterprise cloud leader and added more of the world’s leading companies to the IBM Cloud,” said Rometty. “We continue to innovate, adding regtech capabilities to our portfolio of Watson offerings; developing solutions based on emerging technologies such as Blockchain; and reinventing the IBM mainframe by enabling clients to encrypt all data, all the time.”

IBM Hopes

Rometty is hoping the launch of a new mainframe server this month as part of its cybersecurity push, as well as new contracts in the second half of 2017, will help Big Blue deliver on its full year projections.

But investors are worried that IBM’s decline has been ongoing now since 2011, and IBM Watson has yet to contribute a significant revenue stream to the firm, despite all its press coverage.

Rometty has previously acknowledged that IBM is shrinking “by design”, as part of its refocusing on the cloud and analytics, as hardware earnings continue to fall.

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