IBM optimistic for 2018 behind cloud, mainframe growth
After growing its quarterly revenue for the first time in more than five years, IBM officials believe the company can continue its upward trajectory in 2018.
The key to that will be continuing success within what the company calls its "strategic imperatives," IBM’s Senior Vice President for global markets Martin Schroeter said, including cloud computing, and innovation in its longtime mainframe business.
IBM's Z series of mainframes, including its newest version, the IBM Z, are manufactured in Poughkeepsie.
"Our mainframe is an enduring franchise. In fact, it is an enduring and growing franchise,” Schroeter said.
That growth helped IBM Thursday announce it had grown year-over-year revenue for the fourth quarter of 2017, ending a string of 22 consecutive quarters without growth. IBM's revenue was $22.5 billion in the final quarter last year, the company announced, up 4 percent from $21.8 billion the same quarter in 2016.
The report beat Wall Street estimates, after the third quarter of 2017 showed mostly flat year-over-year revenue.
The global tech giant reported non-generally accepted accounting principles earnings per share of $5.18 for the fourth quarter, up 3 percent from $5.01 the same period in 2016. GAAP, or Generally Accepted Accounting Principles, is a standard set of rules for financial reporting created to ensure consistency for each organization in an industry.
“Any way you look at this, this was a strong finish to the year,” Schroeter IBM’s senior vice president, global markets, in a conference call with analysts on Thursday. Schroeter stepped down earlier this month as Chief Financial Officer and was replaced by James Kavanaugh who was also on the call.
Analysts forecasted non-GAAP earnings per share of $5.17 for the quarter, and revenues of $21.96 billion in revenue, according to Zacks Equity Research consensus estimate.
The consensus on Wall Street was that IBM would see a positive quarter with revenues boosted by its investments, products, and acquisitions in its strategic imperatives categories.
Growth areas include big data, cloud computing, the Internet of Things (IoT), AI and cybertechnology — specifically blockchain, a technology that uses cryptography to verify Bitcoin transactions.
Its IBM Z mainframe, launched in July, includes a revamped encryption engine to focus on mobile security. IBM officials say the mainframe business is particularly robust in North America, were clients are combining it with cloud.
IBM executives are optimistic in 2018 about its services, product portfolio, and forecast revenue will continue to rise.
Schroeter said the company’s focus remains ”returning this business and portfolio back to growth.”
Full-year strategic imperatives generated $36.5 billion, up 11 percent from the same period the previous year, and accounting for 46 percent of the company’s revenue.
Cloud computing revenue was $17 billion, up 24 percent year over year.
Since the early 2000s, IBM has been shifting away from its old business model. In a statement IBM chairman, president and CEO Ginni Rometty confirmed the company’s revenue is driven by strategic imperatives revenue.
Rometty said in 2017 the company “strengthened our position as the leading enterprise cloud provider and established IBM as the blockchain leader for business. Looking ahead, we are uniquely positioned to help clients use data and AI to build smarter businesses."
The company is adding clients in cloud computing, z14 mainframes, the blockchain, AI, and cybersecurity, Schroeter said.
IBM’s fourth-quarter cloud revenues increased 30 percent to $5.5 billion, with a spectrum of clients in the public and private sectors including multinational banks and airlines. In 2017 the company also launched corresponding software such as “IBM Cloud Private.” Schroeter said cloud business has come a long way from the $7 billion revenue it saw a few years back.
Schroeter and Kavanaugh said IBM Watson the machine learning system IBM launched in 2013, is on the growth trajectory too. Watson Financial growth is driven by regulatory and technology, and Watson Health is seeing growth in the areas of cancer and life sciences.
Analysts say IBM’s investment in blockchain is promising too, due to the growing need for cybersecurity. IBM is working with hundreds of clients in this area including Mizuho Bank, London Stock Exchange, and food safety projects in Mainland China.
Technologies such as AI and blockchain are growing because of the company’s “ability to integrate these emerging technologies into our clients’ workflows,” said Schroeter.
On Thursday, IBM’s shares ended at $169.12, up slightly from the previous day’s close of $168.65.
IBM, headquartered in Armonk, employs an estimated 380,000 people globally.