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Annual IBM revenue rises, thanks to cloud, flash storage

Garry Kranz
Garry Kranz

Aided by gains in cognitive analytics, cloud and storage, annual IBM revenue has finally returned to positive territory after an absence of nearly six years.

IBM last week closed its 2017 fiscal year by posting quarterly revenue of $22.5 billion, up 4%. Earnings for the full year remained flat at  of $79.1 billion. The vendor used the earnings call to formally introduce longtime IBM executive James Kavanaugh as its new CFO.

“This is … four quarters in a row (that) we’ve grown storage. And that’s been based on the great work our storage team has done (in) repositioning the portfolio, leveraging and growing share in flash. But it’s also about software-defined and also….object storage that will continue” to provide growth markets, Kavanaugh said.

Cloud initiatives generated IBM revenue of $17 billion, up 27% on a currency-adjusted basis. The revenue figure Includes $9.3 billion from software-as-a-service offerings and nearly $8 billion in hardware, software and services to help companies build IBM-based private clouds. Sales of IBM storage hardware jumped 8%, although IBM does not break down revenue by individual storage products.

The overall results snapped IBM’s string of 23 consecutive losing quarters. The return to revenue growth stems from an IBM strategy shift intended to “significantly improve the trajectory” in burgeoning sectors during the past year, said Martin Shroeter, IBM senior VP of global markets.

“Back in July, we planted the flag for our businesses and we pointed to an improved trajectory in the second half.  As we look back on the year, we (were able to) significantly improve the trajectory in our revenue and our gross margin performance. We did this by ramping up our cloud and as-a-service offerings and by continuing to reinvent” with its new IBM Z mainframe and AI-focused Power9 processor.

IBM revenue is broken into four segments:

  • Cognitive Solutions: $5.4 billion, up 3%
  • Global Business Services: $4.2 billion, an increase of 1%.
  • Technology Services/Cloud: $9.2 billion, down 1%.
  • Systems (including storage): $3.3 billion, up 32%

A fifth segment, global financing, helps customers underwrite the sale of used IBM equipment. Those activities produced $450 million last quarter.

Schroeter said fourth-quarter cloud revenue of $5.5 billion were up 27% on a currency-adjusted basis. The IBM Systems group, which includes system hardware and operating-system software, produced $3.3 billion, a jump of 28 percent.

For the year, IBM derived $17 billion from its enterprise cloud initiatives, including $9.3 billion from software-as-a-service offerings and nearly $8 billion in hardware, services and software to help companies build IBM-based private clouds.

IBM storage revenue has been a bright spot of late. Fueled in part by surging demand for all-flash storage, the latest filing marks the fourth consecutive growth quarter in storage. Revenue from IBM Z Systems mainframe rose more than 70%, thanks to pervasive encryption included in the latest version of the product. Systems hardware sales overall jumped 35%, offset by flat OS software revenue.

“We gained share in a very competitive market while holding margins stable. We had double-digit growth in our high-end hardware products for the quarter, which reflects the demand for flash as well as the capacity increase linked to mainframe demand. Our all-flash array offerings once again grew at a strong double-digit rate and faster than the high-growth all-flash market,” Schroeter said.

Increased flash sales are linked to the IBM Watson cognitive computing. Schroeter said IBM added more than 1,000 customers to its array of Watson-linked verticals, which include Watson Financial, Watson IoT and Watson Health. In addition, IBM and Massachusetts Institute of Technology (MIT) formed the IBM-MIT Watson partnership to unlock AI-based research.

Schroeter said IBM cloud and cognitive analytics are being integrated in more offerings as part of its Strategic Imperatives framework introduced in 2015, which now accounts for 46% of all IBM revenue.