IBM beats the street in Q2 with sales of $20.24B, EPS of $2.95, cloud revenues up 30%

IT giant IBM has just posted its second quarter earnings, where came in at $20.24 billion and non-GAAP earnings per share are $2.95. The numbers beat analysts’ estimates of $20.03 billion in revenue and non-GAAP EPS of $2.89 per share.

However, non-GAAP net income is $2.8 billion, down 25% from a year ago (GAAP net income was $2.5 billion, now 29%). And although results are showing profit and beating analysts’ estimates, they continue to be in decline. A year ago, IBM reported revenues of $20.81 billion and EPS of $3.84.

“IBM continues to establish itself as the leading cognitive solutions and cloud platform company. In doing so, IBM is pioneering new business opportunities beyond the traditional IT marketplace,” said Ginni Rometty, IBM chairman, president and CEO, in a statement. “In the second quarter we delivered double-digit revenue growth in our strategic imperatives, driven by innovations in areas such as analytics, security, cloud video services and Watson Health, all powered by the IBM Cloud and differentiated by industry. And we continue to invest for growth with recent breakthroughs in quantum computing, Internet of Things and Blockchain solutions for the IBM Cloud.”

While the company is one of the biggest and most iconic in the tech industry, IBM’s legacy business — namely areas like its server hardware and Z-systems business — continues to shrink, and this quarter Systems was down more than 23%. This is one reason why the company, along with other big IT players as well as smaller startups, are all putting so much effort and investment into new waves of business.

In the case of Big Blue, that covers just about all kinds of IT under the sun, including emerging areas like blockchain, artificial intelligence and machine learning by way of its Watson division, and a wide array of cloud services, both on its own (as with its video products or security) and in partnership with others like Cisco, which expanded its IBM relationship in recent weeks.

As you can see in the two tables below, the first from the investor presentation and the second from the financial release, while those new areas continue to grow, they are still not enough to offset the other declines:

In terms of Q2 bright spots, cloud services continue to grow and were up 30% this quarter and are now at $11.6 billion for the last 12 months running, and accounted for 17% of IBM’s revenues in the last quarter. Watson and analytics, security, and social and mobile technologies saw their revenues collectively rise 12 percent, and generated $8.3 billion in sales in the last quarter.

Among other divisions, IBM noted overall declines in several of them:

• Cognitive Solutions posted revenues of $4.7 billion, up 3.5%. Cloud revenue in the segment grew 54%.
• Global Business Services had revenues of $4.3 billion, down 2%.
• Technology Services & Cloud Platforms (this includes infrastructure services, technical support services, integration software) had sales of $8.9 billion, down 0.5%.
• Systems (includes systems hardware and operating systems software) had sales of $2 billion, down a whopping 23.2%.
• Global Financing (includes financing and used equipment sales) had sales of $424 million, down 11.3%.

One interesting note to consider for future quarters is how the situation in Europe, and specifically in the UK, may impact the company. Today, IBM reported currency impacts that were in the fractions of percentage points in different divisions, but the company counts the UK as one of its important international markets, and it’s forecasting that currency declines, for example in the UK pound, will impact them in quarters ahead. Other IT companies like HP and Dell and have raised their pricing to make up for the currency drop, so it will be worth watching to see how and if IBM follows suit.