Posts Tagged ‘mainframe cycle’

IBM Halts Losing Quarterly Slide

January 25, 2018

With all respects to Casey at Bat author Ernest Thayer, joy may have returned to Mudville. IBM finally broke its 22 consecutive quarters losing streak and posted positive results in 4Q 17.  Fourth-quarter revenue of $22.5 billion, up 4 percent but that was just the start.

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IBM is counting on its strategic imperatives to come through big and they did in 2017. Full-year strategic imperatives revenue of $36.5 billion, up 11 percent; represents 46 percent of IBM revenue. Similarly, IBM is making some gains in the highly competitive cloud business where IBM is fighting to position itself among the top ranks of formidable cloud players—Google, Amazon, and Microsoft. IBM did quite respectably in the cloud, posting $17 billion in cloud revenue, up 24 percent year to year.

DancingDinosaur readers will be interested to know that some of IBM’s various business segments, which have been a steady drain on IBM revenue turned things around in the 4th quarter. For example, Systems (systems hardware and operating systems software) saw revenues of $3.3 billion, up 32 percent driven by growth in IBM Z, Power Systems, and storage. That’s important to readers charged with planning their organization’s future with the Z or Power machines. They now can be confident that IBM mightn’t the sell the business tomorrow as it did with the x86 systems.

So where might IBM go in the future. “Our strategic imperatives revenue again grew at a double-digit rate and now represents 46 percent of our total revenue, and we are pleased with our overall revenue growth in the quarter.” said Ginni Rometty, IBM chairman, president, and CEO.  She then continued: “During 2017, we established IBM as the blockchain leader for business. Looking ahead, we are uniquely positioned to help clients use data and AI to build smarter businesses.”

Added James Kavanaugh, IBM CFO: “Over the past several years we have invested aggressively in technology and our people to reposition IBM.  2018 will be all about reinforcing IBM’s leadership position,” he continued, “in key high-value segments of the IT industry, including cloud, AI, security and blockchain.”

IBM has done well in some business and technology segments. Specifically, the company reported gains in revenues from analytics, up 9 percent, mobile, up 23 percent, and security, up a whopping 132 percent.

Other segments have not done as well. Technology Services & Cloud Platforms (includes infrastructure services, technical support services, and integration software) continue to lose money. A number of investment analysts are happy with IBM’s financials but are not optimistic about what they portend for IBM’s future.

For instance, Bert Hochfeld, long/short equity, growth, event-driven, research analyst, writes in Seeking Alpha, “the real reason why strategic imperatives and cloud showed relatively robust growth last quarter has nothing to do with IBM’s pivots and everything to do with the success of IBM’s mainframe cycle. IBM’s Z system achieved 71% growth last quarter compared to 62% in the prior quarter. New Z Systems are being delivered with pervasive encryption, they are being used to support hybrid cloud architectures, and they are being used to support Blockchain solutions… Right now, the mainframe performance is above the prior cycle (z13) and consistent with the z12 cycle a few years ago. And IBM has enjoyed some reasonable success with its all-flash arrays in the storage business. Further, the company’s superscalar offering, Power9, is having success and, as many of its workloads are used for AI, its revenues get counted as part of strategic initiatives. But should investors count on a mainframe cycle and a high-performance computer cycle in making a long-term investment decision regarding IBM shares?

He continued: “IBM management has suggested that some of the innovations in the current product range including blockchain, cryptography, security and reliability will make this cycle different, and perhaps longer, then other cycles. The length of the mainframe cycle is a crucial component in management’s earnings estimate. It needs to continue at elevated levels at least for another couple of quarters. While that is probably more likely, is it really prudent to base an investment judgement on the length of a mainframe cycle?

Of course, many DancingDinosaur readers are basing their career and employment decisions on the mainframe or Power Systems. Let’s hope this quarter’s success encourages them; it sure beats 22 consecutive quarters of revenue declines.

Do you remember how Thayer’s poem ends? With the hopes and dreams of Mudville riding on him, it is the bottom of the 9th; Casey takes a mighty swing and… strikes out! Let’s hope this isn’t IBM.

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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