Cloud, analytics, social, and security make up nearly half of Big Blue’s earnings
Despite losing money, IBM surprised Wall Street investors and the tech market a couple of days ago by posting better-than-expected fourth-quarter earnings and a higher-than-expected 2019 forecast. However, the bigger story to come out of the earnings report is that emerging technologies are taking over Big Blue.
The Lowdown: Cloud computing, analytics, mobile, social, and security account for the emerging technology businesses at IBM. Collectively, these product and service lines now make up 49 percent, or $39.5 billion, of the company’s gross revenue.
The Details: While emerging technologies are responsible for a larger portion of IBM’s revenue, they’re not responsible for Big Blue beating earnings expectations. IBM reported fourth-quarter earnings of $21.8 billion, beating expectations by $100 million based largely on the strength of its legacy mainframe products and government service contracts. Technology and Cloud Platforms missed its target of $9.04 billion by $140 million. Cognitive systems’ revenue is mostly unchanged at $5.46 billion.
The Impact: Revenue generated through emerging technologies will likely climb as Red Hat, the open-source operating system acquired for $34 billion last year, is assimilated into IBM’s portfolio. Red Hat’s revenue is not yet a factor in IBM’s earnings, as the deal won’t close until the second half of 2019. IBM bought Red Hat to bolster its cloud business, which lags behind Amazon Web Services and Microsoft Azure in market share.
Background: IBM revenue has declined over the past several years as the vendor transitions from legacy hardware and software to cloud services and advanced software solutions. Of IBM’s $80 billion in annual revenue, cloud computing makes up $19 billion — $11 billion in cloud-based services and $8 billion in the sale of hardware and software that support cloud infrastructure.
The Buzz: “In 2018 we returned to full-year revenue growth, reflecting growing demand for our services and leadership solutions in hybrid cloud, AI, analytics, and security,” said Ginni Rometty, IBM chairman, president, and CEO, in a press release. “Major clients worldwide, such as BNP Paribas, are turning to the IBM Cloud and our unmatched industry expertise to transform their businesses and drive innovation.”