Shares in IBM took a major hit in after-hours trading Tuesday after the tech giant reported revenues that failed to meet analysts’ expectations. Big Blue has now reported 21 consecutive quarters of year-on-year sales declines. So what’s next? Analyst Stephanie Long of Technology Business Research takes a look. (Note: Check the graphic included with this post to see a breakdown of IBM revenues by segment.)
HAMPTON, N.H. – Revenue declines do not cause IBM to waiver in its commitment to modernizing its portfolio to address the challenges of the future
Year-to-year revenue declines accelerated sequentially for IBM in 2Q17, falling 5% year-to-year to $19.3 billion. Declines persisted despite a reported 5% year-to-year increase in revenue from strategic imperatives [such as cognitive computing] and a 15% year-to-year increase in cloud revenues, indicating revenue challenges to more traditional business units drove these overall revenue declines.
In fact, despite reported gains in these strategic portions of IBM’s business, the vendor experienced year-to-year revenue declines across all five of its major business units.
Although IBM Systems remained a driver of IBM’s revenue challenges in 2Q17, falling a reported 10% year-to-year to $1.7 billion, the July launch of z14 will support revenue gains in 2H17. The z14 addresses many of the modern challenges customers are facing, including security challenges and coding language preferences, making it a platform that can solve many existing customer pain points.
However, IBM has yet to bring its POWER9 chip to market, which TBR believes will partially offset IBM Z gains in IBM’s overall Systems business in 2H17. This is a challenge because IBM is depending on z14 to reverse some of its revenue challenges in 1H17, but the ongoing challenges to Power Systems’ performance may prevent total Systems performance from being as successful as initially expected.
During 2H17, TBR still anticipates gradual improvements to IBM’s financial performance. There will be a cyclical upswing in IBM Z, and Power, despite overall challenges, is still experiencing successes from Linux adoption.
Ongoing advancements in its strategic imperatives will further enable IBM to offset hardware’s impact on top line successes in 2H17.
[IBM operates one of its largest corporate campuses in Research Triangle Park and employs several thousand people across North Carolina.]