Despite growing momentum for its cloud services, big data and analytics product portfolio, IBM continues to face revenue and profit challenges in 2015. Big Blue's Q4 2014 profits, announced today, beat Wall Street's expectations. But overall revenue was down across multiple IBM business units --- and the company cut its earnings expectations for fiscal 2015.

Among the Q4 2014 financial details IBM disclosed:

  • Global IT services revenues decreased 8 percent to $13.5 billion vs. Q4 2013.
  • Software revenues dropped 7 percent to $7.6 billion vs. Q4 2013.
  • Global financing revenues were flat at $532 million.
  • Hardware revenues were $2.4 billion, down 39 percent but the year-over-year comparison is a bit misleading since IBM has sold off some hardware businesses. IBM says hardware revenues were down 12 percent when adjusted for the System X business sell-off and currency exchange rates.

Signs of Hope

No doubt IBM remains in transition mode. The company in recent months has announced several big cloud computing and analytics wins while also shifting the leadership of global services. The Watson portfolio continues to expand with new application offerings and partner ecosystem members. Plus, an IBM-Apple mobile partnership -- moving business apps onto iPhones and iPads -- is off to a promising start. And just last week, IBM announced its latest mainframe with greater scalability for analytics applications.

Striving to put the spotlight on growth businesses, IBM today said:

  • Cloud revenue is now about $7 billion, up about 60 percent. But that figure is not necessarily recurring revenue. Rather, it can include one-time hardware and software sales to public and private cloud providers.
  • The more important figure involves cloud delivered as a service -- where IBM now has an annual revenue run rate of $3.5 billion. That figure is recurring -- assuming IBM retains those cloud customers.
  • Business analytics revenue grew 7 percent to nearly $17 billion.
  • Mobile revenue more than tripled, though IBM didn't disclose the actual figure.
  • Security revenue rose 19 percent, though IBM didn't disclose the actual figure.
  • Overall, IBM says those high-value growth markets represent more than $25 billion in annual revenues.

Challenges Remain

Still, Wall Street remains concerned about IBM's long-term business. Revenues have been flat or decreased 11 consecutive quarters. CEO Ginni Rometty abandoned lofty 2015 profit targets last year. And today, IBM announced revised 2015 earnings targets that were -- once again -- below Wall Street's expectations.

During an earnings call, IBM conceded that the shift to cloud computing will pressure margins. SAP made similar statements during its own earnings call earlier today.

IBM also hinted that the company will continue to focus much of its acquisition and partnership efforts in the "as a service" area. IBM officials during the earnings call pointed to growing relationships with Apple and Twitter, and not needing to "own it all" as customers increasingly embrace hybrid cloud offerings.

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