IBM still doesn't have the scale in cloud to give it the required margins The need for scale in cloud and software sales has been made most strongly by IBM's latest results. Shares in IBM dropped after the company reported that its Q4 revenue fell year-on-year for a 15th straight quarter; it also cited currency exchange headwinds. The decline, however was mainly in the US and AsiaPac; Europe rose 1%. The profitability has been affected by its move to cloud.
It is a business in transition, as it admits, reporting Q4 revenue of $22.1bn, down 9% on year ago numbers. IBM is showing cloud and analytics expansion, but the growth isn't strong enough to offset declines elsewhere. The company said total cloud revenue was $10.2bn, “as-a-service” sales were $4.5bn. IBM said it has a run rate of $5.3bn for cloud delivered as a service, with analytics revenue up 7% from a year ago.
CEO Ginni Rometty (below) said IBM now derives 35% of its sales from cloud, analytics, mobile, social and security. “Europe returned to growth, led by continued growth in Germany, France, and the UK. In fact, Germany posted double-digit growth and in December, we announced Munich as the headquarters for our new Watson IoT business, as well as our first European Watson innovation centre,” she added.
Martin Schroeter, IBM’s Senior Vice President and Chief Financial Officer: “IBM is a high margin solution company. For the as-a-Service component of that, the margins are a little bit lower than that. Now a lot of that is because we don’t yet have the scale that we’d like or it’s that we’re investing very heavily in order to drive that platform into our clients’ environment. And so, we’ll see margin improvement as we go into 2016 as we add more scale or take advantage if you will of the investments we have made. So in total the strategic imperative revenue over time will not have a dramatically different margin profile than what we see today.”
The topics of scale and cloud transition for software companies are on the agenda of the European Software and Solution Summit set for April in London, details here