Editor’s note: Scott Dennehy is Engagement Manager/Senior Analyst at
Technology Business Research. He offers analysis on IBM’s most recent earnings report.

HAMPTON, N.H. – IBM (NYSE: IBM) continues to trade revenue growth for profitability in the Communications vertical.

A combination of reduced customer spending and the company’s emphasis on profitability continues to negatively impact IBM’s revenue in the Communications vertical, which was down an estimated 14.4% year-to-year in 3Q13.

This included an 11.6% drop in communication services revenue as the company remains focused on high-margin consulting opportunities, primarily on applications and with minimal exposure to telecom infrastructure where many services opportunities exist as service providers around the world invest in LTE and other network upgrades.

This trend will continue into 2014 as IBM limits its focus to high-margin consulting services while positioning new solutions that help telecom providers create revenue opportunities, in areas such as cloud and mobility, and gain greater insight into their networks and customer behavior (e.g., analytics).

The Now Factory buy will further align IBM’s portfolio with service provider pain points

IBM boosted its service provider analytics capabilities, including subscriber usage analytics, customer experience monitoring and network management functionality through the acquisition of privately held The Now Factory in early October.

Currently, communications revenue comprises roughly 7% of IBM’s corporate revenue, delivering a reported $2 billion in revenue in 3Q13. With the addition of The Now Factory, IBM can leverage new analytics solutions to further engage and drive top-line revenue in the space by expanding customer relationships through new solutions engagements.

Trends, including declining revenue from legacy businesses, customer churn and increased complexity of managing networks as a result of smartphone adoption, are putting strain on service providers to maintain their business models.

With these factors in mind, network equipment providers (including Ericsson, Alcatel-Lucent, and Nokia Solutions and Networks), as well as IT and software vendors including HP and IBM are increasingly investing in analytics solutions to help alleviate the pressure felt by service providers and position them to more effectively meet customer demand.

Providing actionable insight around customer data consumption on mobile devices, a key value proposition delivered by The Now Factory, will enable service providers to ensure positive end-user experiences and drive increased customer retention.