IBM Earnings Preview: Revenue To Decline As Shift To Cloud Services Continues

IBM ( IBM ) is set to report its Q1 2017 earnings on April 18th. In Q4 2016, the company saw a marginal slowdown in revenues as the shift to cloud computing and currency headwinds continued to plague the company. IBM reported (on an adjusted basis) a 1.3% year-over-year decline in revenues to $21.77 billion. Furthermore, the consolidated gross margin declined by 171 basis points to 50%. More importantly, revenue from its Strategic Imperatives grew to $10 billion in the quarter. For the year, Strategic Imperatives revenues grew by 14% year over year to $32.8 billion. Comprising 40% of the total, these imperatives include revenue generated from analytics, the cloud, mobile computing, security and social media. We believe that this trend continued in Q1, and cognitive software solutions will report growth yet again.

Despite the growth in Strategic Imperatives, IBM’s Technology Services  Cloud and Global Business Services (GBS) segments have reported weaker results over the past year as the transition to cloud services is impacting the implementation of traditional packaged applications. Additionally, the server hardware business should continue to report a decline in revenues as both its server lines are in a later stage of the product life. In addition, the storage business will likely post a decline due to the secular changes in the industry, though the company acquired Nimble Storage for $1.09

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