IBM Forced to Report Fifth Straight Year of Revenue Declines

Like other longtime IT product and service providers, Big Blue is experiencing sharp financial pains in making the switchover to software and cloud services from hardware.

IBM.Watson

IBM had some good and some not-so-good news regarding its earnings on April 18. Like several other longtime IT product and service providers, the venerable company is experiencing some sharp financial pains in making the switchover to software and cloud services from its traditional IT hardware businesses.

The earnings report beat Wall Street projections for the quarter ($2.38 vs. $2.35 per share, as per Thomson Reuters analysts), but there was no running away from the fact that Big Blue's revenue has decreased in each of the last five fiscal years, amounting to 20 consecutive quarters.

For the full fiscal year, IBM came in flat at $13.80 per share versus $13.78 per share expected by Thomson Reuters.

Revenue from continuing operations in Q1 2017 totaled $18.2 billion, coming in 3 percent short of the $18.39 billion projected by Thomson Reuters analysts. Income the company earned from so-called "strategic imperatives" amounted to $7.8 billion in the quarter, up 12 percent year over year.

For IBM, "Strategic imperatives" include businesses such as cloud, analytics, mobility and security.

IBM has the right to celebrate the direction in which its cloud services and infrastructure businesses are heading. The strategic imperatives revenue of $33.6 billion during the last 12 months comprised nearly half (42 percent) of IBM's fiscal year revenue. Cloud-related revenue (services, storage, tool licensing, others) grew to $14.6 billion during the last 12 months, the company said.

Nonetheless, the Armonk, N.Y.-based corporation has experienced a five-year run of year-over-year revenue declines dating back to April 2012.

"The portfolio will grow. I am confident that the IBM company will grow again," Chief Financial Officer Martin Schroeter told CNBC. "We're taking time to make sure we invest in the right places and make sure we get the kind of margin high-value profile we're looking for."

Schroeter said the company increased research and development spending during the last quarter. Research and development costs were indeed higher, climbing to $1.53 billion during the quarter, up from $1.46 billion a year ago.

"For us what it's always been about for us is a shift as much as it is adding to that pie," Schroeter said in the conference call. "So I think the adding to the pie now is behind us and the shift will continue. So we'll continue to invest heavily in the strategic imperatives, but it won't represent the same growth that we've seen in the past."

In its corporate statement, IBM published the following quote from Chairman, President and CEO Ginni Rometty: "In the first quarter, both the IBM Cloud and our cognitive solutions again grew strongly, which fueled robust performance in our strategic imperatives. In addition, we are developing and bringing to market emerging technologies such as blockchain and quantum, revolutionizing how enterprises will tackle complex business problems in the years ahead."

Chris Preimesberger

Chris Preimesberger

Chris Preimesberger is Editor of Features & Analysis at eWEEK, responsible in large part for the publication's coverage areas. In his 12 years and more than 3,900 stories at eWEEK, he has...