IBM Cheers Beating Estimates But Losing Streak Continues

It has been 19 quarters since IBM reported positive revenue in its quarterly reports but the noises coming out of IBM with the latest 4Q16 and full year 2016 financials are upbeat due to the company beating analyst consensus revenue estimates and its strategic initiatives are starting to generate serious revenue.   Although systems revenues were down again (12%) the accountants at least had something positive to say about the z: “gross profit margins improved driven by z Systems performance.”

ezsource-dashboard

EZSource: Dashboard visualizes changes to mainframe code

IBM doesn’t detail which z models were contributing but you can guess they would be the LinuxONE models (Emperor and Rock Hopper) and the z13. DancingDinosaur expects z performance to improve significantly in 2017 when a new z, which had been heavily hinted in the 3Q2016 results reported here, is expected to ship.

With it latest financials IBM is outright crowing about its strategic initiatives: Fourth-quarter cloud revenues increased 33 percent.  The annual exit run rate for cloud as-a-service revenue increased to $8.6 billion from $5.3 billion at year-end 2015.  Revenues from analytics increased 9 percent.  Revenues from mobile increased 16 percent and revenues from security increased 7 percent.

For the full year, revenues from strategic imperatives increased 13 percent.  Cloud revenues increased 35 percent to $13.7 billion.  The annual exit run rate for cloud as-a-service revenue increased 61 percent year to year.  Revenues from analytics increased 9 percent.  Revenues from mobile increased 34 percent and from security increased 13 percent.

Of course, cognitive computing is IBM’s strategic imperative darling for the moment, followed by blockchain. Cognitive, for which IBM appears to use an expansive definition, is primarily a cloud play as far as IBM is concerned.  There is, however, a specific role for the z, which DancingDinosaur will get into in a later post. Blockchain, on the other hand, should be a natural z play.  It is, essentially, extremely secure OLTP on steroids.  As blockchain scales up it is a natural to drive z workloads.

As far as IBM’s financials go the strategic imperatives indeed are doing well. Other business units, however, continue to struggle.  For instance:

  • Global Business Services (includes consulting, global process services and application management) — revenues of $4.1 billion, down 4.1 percent.
  • Systems (includes systems hardware and operating systems software), remember, this is where z and Power platforms reside — revenues of $2.5 billion, down 12.5 percent. But as noted above, gross profit margins improved, driven by z Systems performance.
  • Global Financing (includes financing and used equipment sales) — revenues of $447 million, down 1.5 percent.

A couple of decades ago, when this blogger first started covering IBM and the mainframe as a freelancer writing for any technology publication that would pay real money IBM was struggling (if $100 billion behemoths can be thought to be struggling). The buzz among the financial analysts who followed the company was that IBM should be broken up into its parts and sold off.  IBM didn’t take that advice, at least not exactly, but it did begin a rebound that included laying off tons of people and the sale of some assets. Since then it invested heavily in things like Linux on z and open systems.

In December IBM SVP Tom Rosamilia talked about new investments in z/OS and z software like DB2 and CICS and IMS, and the best your blogger can tell he is still there. (Rumors suggest Rosamilia is angling for Rometty’s job in two years.)  If the new z does actually arrive in 2017 and key z software is refreshed then z shops can rest easy, at least for another few quarters.  But whatever happens, you can follow it here.

DancingDinosaur is Alan Radding, a veteran information technology analyst, writer, and ghost-writer. Please follow DancingDinosaur on Twitter, @mainframeblog. See more of his IT writing at technologywriter.com and here.

 

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