Editor’s note: A review of IBM’s latest earnings report finds that cloud and cognitive solutions and a growing global footprint enable IBM to deliver the same transformation experience anywhere in the world, says analyst Jennifer Hamel of Technology Business Research.

HAMPTON, N.H. – As hardware-centric peers such as Dell Technologies and Hewlett Packard Enterprise (HPE) shed their services organizations, IBM remains committed to its strategy to address enterprises’ digital transformation needs through comprehensive hybrid IT solutions from Global Technology Services (GTS) and industry consulting-led cognitive solutions from Global Business Services (GBS) segments. GTS sustained year-to-year revenue growth for the third consecutive quarter, while GBS reverted to low-single-digit contraction, reflecting the ongoing shift from legacy implementation and outsourcing services to cloud-delivered solutions. This dynamic, combined with currency headwinds related to the stronger U.S. dollar, resulted in a 0.1% decline in total services revenue. IBM will continue to invest in industry and digital expertise, including in emerging markets, to stimulate GBS growth, but we expect GTS, where IBM offers a hybrid IT value proposition unmatched by services-led peers, will remain the stronger segment financially through 2017.

GTS revenue (comprising the Infrastructure Services and Technical Support Services subsegments of the new Technology Services and Cloud Platforms reporting segment) grew 2% year-to-year to $7.9 billion in 4Q16. Infrastructure Services expanded 3% as reported, as IBM continues to address increasing client demand for hybrid IT solutions involving strategic imperatives including cloud, analytics and security, while Technical Support Services stayed flat.

GBS revenue fell 4% year-to-year in 4Q16 to $4.1 billion, with declines across Consulting, Business Process Services and Application Management segments. Within GBS, strategic imperatives revenue grew 18% to $2.4 billion, representing more than half (58%) of total GBS revenue, highlighting IBM’s success leveraging industry consulting and solutioning expertise around cognitive, analytics, mobility and blockchain technologies to drive digital engagements. However, pricing pressures in traditional ERP implementation deals continue to prevent overall GBS growth.

IBM addresses growing IT security concerns with cognitive computing, analytics and managed services

According to TBR’s 2017 Services Predictions, clients’ increased vulnerabilities to cyber threats drive heightened demand for more expansive security services, tempered by growing concerns about security costs. IBM brings the full weight of its software and services capabilities, including its Watson cognitive computing engine and global delivery network, to address enterprise security needs and differentiate from competitors across the IT spectrum. The acquisition of Resilient Systems in April enhanced IBM Security’s X-Force Incident Response and Intelligence Services (IRIS) capabilities, including the addition of 100 security consultants to IBM’s X-Force delivery team. IBM Security continued in November to augment its security operations footprint to address global security services demand, opening a new X-Force Command center in Cambridge, Mass., updating its security operations center (SOC) in Atlanta and opening SOCs in Bangalore, India; and Poland.

Customers are increasingly deploying security analytics and orchestration to address modern security threats. IBM is developing security analytics capabilities with Watson for Cyber Security, although TBR notes some IBM competitors such as Dell Technologies (with RSA) have established strong commercial customer bases in security analytics while IBM’s offering is still in beta program status. IBM has captured a leadership position in security orchestration, however, with its Resilient Incident Response Platform (IRP). Overall, IBM is well-positioned to upsell security services to its existing infrastructure management base as well as attract emerging market clients. However, the premium price of IBM’s advanced security services may limit opportunities among cost-conscious enterprises.

IBM leverages client centers in APAC to expand in emerging markets and show off innovation capabilities

As demand for digital transformation grows in APAC, IBM’s early investments in client innovation and service delivery centers translate to new and expanded client engagements in the region. Singapore has become IBM’s hub for serving APAC’s next-generation technology needs, with the Watson Center at Marina Bay, opened in June, hosting clients from across the continent, as well as local startups such as KYCK and Fresh Turf, to cocreate cognitive, blockchain and cloud solutions with IBM’s designers, consultants and technology experts. IBM also offers similar services at its Bluemix Garage in Tokyo.

IBM has operated in APAC for years, but the region represents a key opportunity for the company to remake its global image from that of a legacy IT stalwart to that of a magnet for technology and business model innovation. Showcasing how companies in APAC are creating solutions using newer technologies such as blockchain (as IBM has done with Mizuho Financial Group, Japan Exchange Group and Kasikornbank) could also help IBM jumpstart adoption in mature markets, particularly as large enterprises become increasingly concerned with disruption by emerging market entrants.

(C) TBR