IBM’s precarious tightrope walk continues

IBM has reported another mixed bag for its second quarter, with the Strategic Imperatives unit growing again, but the legacy slump accelerating.

We’re not too sure what to say about IBM to be completely honest. It is one of those old-school tech brands which has seemingly made the jump to the new world, but the ties to the old keep dragging it down. Yes, the new initiatives are growing pretty healthily, but it would appear not fast enough to compensate for the fast sinking legacy ship.

Overall the business declined year-on-year, for the 21st consecutive quarter, with revenues down to $19.3 billion, representing a 5% dip. But then the Strategic Imperatives unit, comprised of cloud, analytics, social, mobile and security, is up 5%, now accounting for 45% of total revenues. This is a trend going the right direction, it only accounted for 42.8% last quarter, but there might be a worry in some quarters that growth is not fast enough.

This trend of course would not worry the stronghold of IBM executives. Like every management team, they are naturally gifted in the art of spin.

“In the second quarter, we strengthened our position as the enterprise cloud leader and added more of the world’s leading companies to the IBM Cloud,” said Ginni Rometty, IBM CEO. “We continue to innovate, adding regtech capabilities to our portfolio of Watson offerings; developing solutions based on emerging technologies such as Blockchain; and reinventing the IBM mainframe by enabling clients to encrypt all data, all the time.”

In terms of specifics, the Strategic Imperatives unit brought in $8.8 billion, of which cloud contributed $3.9 billion, a 15% increase year-on-year. Analytics revenue of $5.1 billion was up 4%, mobile up 27% and security up 4%. But on the other side of the coin, IBM’s Technology Services and Cloud Platforms unit produced $8.4 billion in revenue, down 5.1%, and cognitive solutions was down 2.5% to $4.6 billion. Global Business Services dropped 3.7% to $4.1 billion, while the Systems segment dipped 10.4% to $1.7 billion.

It’s a real mixed bag, especially considering IBM raised its quarterly dividend again in April, doubling the dividend from 2010 CFO Martin Schroeter boasted, but share price has dropped 7% since the beginning of the year. Confidence must be starting to strain.

Perhaps it is time to accept that IBM will not be the powerhouse it once was. The business will certainly not shrink into insignificance though; Watson could be considered the premier AI platform, Softlayer is no mug in the cloud race and its encryption push with IBM Z is saying the right things at the right time, but is this enough?

When you look back to the 70s and 80s, IBM was the dominant force in the technology world. Like AWS in cloud, Facebook in social media or Welsh people in a beauty pageant, there is little contest. But no longer. Watson is by no-means dominant over Deepmind, Softlayer is most certainly not the industry leader and security is a thankless task which will never be perfected.

To use a sports analogy, IBM could be considered the same as Manchester United Football Club. It used to be dominant, but then there was a change in the landscape and it was playing catch-up. It tried to buy the best players, and bring into the best support team to recover the fortunes, but it is always a step behind. Manchester United fans might have to accept their new place in the pecking order, just as IBM fans will.

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