Can IBM escape its revenue slump?

Can IBM escape its revenue slump?

Analysts weigh in on whether Big Blue will get back to revenue growth

IBM’s latest quarterly financial results reportedly topped off 20 straight quarters of revenue decline, with the company’s 1Q17 period seeing revenue falling more than two per cent year-to-year to US$18.2 billion.

According to Reuters, the latest figures were due, in part, to weak demand in the company’s services business.

Overall services revenue declined 2.5 per cent year-to-year in 1Q17, according to Technology Business Research (TBR).

This result came as IBM’s global technology services (GTS) and global business services (GBS) divisions both “continued to grapple with the shift from legacy implementation and outsourcing toward cloud-delivered solutions built around strategic imperatives”, according to TBR senior analyst, Jennifer Hamel.

Fellow TBR analyst, Stephanie Long, suggests that the latest quarter saw revenues pulled down by contracting sales for legacy solutions, regardless of the successes of other, modern solutions, like its cloud and cognitive capabilities.

“A 13 per cent year-to-year increase in revenues from IBM’s strategic imperatives and the solutions contribution of 42 per cent of overall revenue reinforces this trend,” Long said.

At the same time, IBM’s systems hardware revenue contracted by 18 per cent year-on-year for the period, led by a 40 per cent decline in z Systems revenue. This was impacted by historical systems cycles, according to Long. Regardless, IBM expects this slump to shift in the second half of 2017.

Despite these figures, Long said that TBR anticipates that IBM will see gradual improvements in its financial performance during the remainder of 2017.

It is expected that this will be driven, in part, by IBM’s continued investment in “highly strategic” pieces of its systems hardware portfolio, such as its next-generation storage offerings, like flash storage, which saw double-digit growth in 1Q17.

TBR also predicts that IBM will also attempt to turn its revenue woes around by targeting the majority of its investment efforts toward its cloud, analytics, mobile, security and social initiatives.

“Further, ongoing investments in areas such as blockchain and quantum computing are evidence IBM remains committed to its portfolio modernisation to build out higher-margin solutions despite ongoing revenue challenges,” Long said.

TBR also expects to see IBM realise benefits arising from recent acquisitions that will support profit gains, as well as a cyclical upswing in the company’s z Systems business.

“These factors will enable IBM to achieve year-to-year revenue gains during 2H17,” long said.

Meanwhile, TBR expects IBM’s efforts to remix its portfolio, despite ongoing revenue challenges, will position the company’s services business well for the future.

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