IBM has been having a rough time for, oh, the past five and a half years. The company has had declining revenue for 22 straight quarters, but yesterday while it still had declining revenue, Big Blue gave an earnings report that could possibly indicate it might be seeing the light at end of the revenue tunnel. If so, it’s been a long time coming.
Regardless of the results, the numbers exceeded analyst expectations. For starters, the revenue was down, but not as far down as expected with the company reporting $19.15 billion, down from $19.23 billion last year, but far ahead of the $18.59 billion that analysts were calling for. Earnings per share were up $0.02, with the company reporting $3.30 per share instead of the expected $3.28.
Wall Street was clearly pleased as the stock price surged overnight with shares up more than 5 percent, running around $160 a share today, up from $146.67 at the close of trading yesterday. Business Insider reported that Kathy Huberty from Morgan Stanley thinks this could represent an inflection point for the company, and based on her experience with other tech companies, IBM is showing signs it could be heading toward a successful rebound.
So what was driving this semi-positive news? Well, if you guessed the cloud, you’re at least partly right. Cloud revenue broke the $4 billion mark, up 20 percent for the quarter, putting the company on a healthy $16 billion cloud run rate.
Heck, even that old chestnut, the mainframe, was up more than 10 percent with the Systems revenue category earning $1.72 billion in revenue for the quarter.
Looking ahead
But it’s not mainframes that are going to drive a recovery should it ever come for the company. It’s going to be its big bet on the cloud, which really began in earnest in 2013 when the company bought Softlayer for $2 billion. It has been building a cloud business ever since, adding software and platform pieces over the years to give them a full suite of cloud tools to offer customers.
It remains to be seen whether IBM can get over that revenue hump and begin reporting positive earnings, but for the first time in a long time it feels like they could be close, and that their modernization push around cloud, artificial intelligence, big data, and security could finally be paying off.
The cloud business is certainly leading the way, and in many ways crosses all of those categories, as it packages various pieces as cloud services and sells them to customers. As the cloud business continues to develop, perhaps some time in the coming quarters we will start to see it push the company into positive revenue territory. It would certainly be about time.
Photo: Michale Cote on Flickr. Used under CC by 2.0 license.
That is great news. I believe all Americans want IBM to succeed. All US businesses should take a look at what IBM has to offer. We need to keep big blue alive!