The slow-motion horror show that is IBM under CEO Ginni Rometti continued with this month’s quarterly financial results. The good news was that revenues grew for the second quarter in a row after five years of decline.
The bad news was that revenues only grew by 5 percent to $19.1 billion thanks to “currency tailwinds” – the 10 percent depreciation of the trade-weighted US dollar over the past year. In IBM’s own words, revenues were “flat adjusting for currency”.
Let’s look at how other companies did in the same quarter. Microsoft increased revenues by 16 percent to $26.8 billion and profits by 35 percent to $7.4bn. Google (Alphabet) increased revenues by 26 percent to $31.1 billion and operating income grew by 6.6 percent to $7bn. Amazon increased revenues by 43 percent to $51bn while profits more than doubled to $1.6bn. Facebook increased revenues by 50 percent to $11.8bn and profits by 63 percent to $5bn.
IBM used to be America’s leading company and one of the world’s most powerful corporations. Its annual revenues peaked at £107bn as recently as 2011. But it has already been overtaken by Amazon, Apple, Google and Microsoft, and at current growth rates, even Facebook will surpass IBM. In fact, Facebook made more money than IBM – $5bn vs $2.3bn – in the latest quarter.
By now, we are all familiar with IBM’s strategy to shift sales from traditional low-margin businesses to what it calls “strategic imperatives”, such as cloud services, AI, security, blockchain and quantum computing. However, this is not a separate division, and IBM does not break out the numbers. It claimed that SI revenues were up by 15 percent, or by 10 percent at constant currency. That isn’t impressive in a booming market.
In the conference call about the results, IBM’s chief financial officer Jim Kavanaugh said: “Our cloud revenue is now $17.7 billion over the last year, which is up 22 percent.”
Two points. First, as I’ve pointed out before, IBM counts a proportion of mainframe sales as “cloud sales,” and mainframe sales grew by 71 percent and 54 percent in the past two quarters. Next year’s cloud figures are unlikely to get a similar boost from mainframes, and a cycle implies a decline.
IBM’s mainframe and storage revenues are quite small, nowadays, but when growth is marginal, they make a difference.