IBM (IBM, Financial) reported its second-quarter earnings, missing Wall Street estimates for the top line and beating estimates for the bottom line. But the unfortunate revenue trend decline continued as IBM recorded its 21st consecutive quarter of sales decline.
Big Blue reported net sales of $19.29 billion, much lower than the $19.49 billion expected by the market but managed to post earnings per share of $2.97 against the expected $2.74.
IBM reiterated its guidance of at least $13.80 in earnings per share for the full year of 2017, in line with its guidance from the first quarter. Analysts had expected guidance of $13.68 per share. –Â CNBC
Revenue from Strategic Imperatives, a group of forward-looking business streams that includes Analytics, Cloud, Mobile and Security, reached $8.8 billion in size during the second quarter, growth of 6% compared to the prior period. IBM’s Analytics unit crossed a crucial milestone of $5.1 billion in revenues while the Cloud unit’s annual run rate reached $8.8 billion, growth of 32% compared to the prior period.
IBM has been using the Cloud-as-a-Service annual run rate metric to show that it is keeping pace with the leaders Amazon (AMZN, Financial) and Microsoft (MSFT, Financial) in this space, but the second-quarter growth rate raises a lot more questions than answers.
In the last four quarters, IBM’s Cloud-as-a-Service annual run rate grew 63% during fiscal 2016 and came very close during the first quarter of 2017, posting a 61% growth rate. It’s a bit of a surprise, then, that annual run rate moved from the above-60% range down to 32%. But it’s still way too early to say that IBM’s strong growth in cloud has now come to an end; how much growth it records during the second half of the year will give us a clear indication of whether the second quarter cloud growth number was an anomaly or a new trend.
The biggest headache for IBM remains at migrainous levels. IBM’s path to revenue growth runs through its Strategic Imperatives group, as this is the part of the business that is growing while other parts keep declining. IBM will only return to sustainable revenue growth when the growth of this segment in absolute dollars starts offsetting losses from other segments. With the Strategic Imperatives segment still 7% short of contributing half of IBM’s overall revenues, the company looks all set to continue its record-breaking revenue decline streak.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
