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For 22 quarters or 5.5 long years, IBM reported negative revenue growth, but last week the company finally announced a positive quarter. 

Revenue increased to $22.54 billion — and that beat analysts’ estimates. A good portion of that could be attributed to its cloud business push and related strategic initiatives.

Reuters reported a 3.6 percent increase, while MarketWatch pegged them at 3.2 percent. The difference has to do with which analysts they chose. They average out the predictions of a list of industry analysts, and if the the analyst’s estimates beat the announced number, it’s considered positive revenue. 

Perhaps the more interesting part of the earnings report wasn’t just the obvious return to positive territory, it was how they got there, driven by their slow and steady march to the cloud. Cloud revenue hit $17 billion for the year up 24 percent, while the company’s 2017 “as a service” run rate hit $10.3 billion for the quarter up 20 percent.  

The cloud falls under the company’s strategic imperatives category and includes security, mobile, artificial intelligence (Watson), and analytics. That revenue was up 17 percent for the quarter and 11 percent over the full year, representing $36.5 billion or 46 percent of the company’s overall revenue. That means the company has successfully transitioned almost half its revenue to its more modern initiatives, a point that IBM’s Martin Schroeter, senior VP of global markets happily trumpeted in the earnings call.

“Over the last several years, we’ve been making investments and shifting resources, embedding AI and cloud into more of what we offer and building new solutions and modernizing existing ones. These investments not only drive our Strategic Imperatives revenue performance today but will also extend our innovation leadership into the future,” Schroeter told analysts.

How they got here

It’s worth pointing out that the last positive revenue quarter was back in 2012, which perhaps not coincidentally marked the point where IBM began turning its attention to cloud computing. At about the same time, the Watson technology was almost ready for prime time. The company began using its cash reserves to shift to the future.

Perhaps its most important purchase was Softlayer acquisition in June 2013 for $2B. It gave the company a missing infrastructure piece that the traditional data center hardware player had been missing. As they bought many different software services, they began building a legitimate cloud business.

It’s certainly not easy for a company the size of IBM to simply turn the battleship and refocus the company. It takes a series of investments and shifts in internal priorities and it’s not easy to transform an entire organization. There has to be a rough period of transition, and we have witnessed that over the previous 5.5 years.

While returning to positive earnings is certainly a good first step for Big Blue, it’s not a guarantee that they’ve turned the corner, but at least it’s a positive sign that their modernization strategy could be working.

Photo: Orrling on – Under Own work, CC BY-SA 3.0 license.

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Ron Miller

Posted by Ron Miller

Ron Miller is a freelance technology reporter and blogger. He is contributing editor at EContent Magazine and enterprise reporter at TechCrunch.

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