IBM has managed to post a third quarter revenue that was higher than analysts' predictions, thanks in part to strong growth from its cloud and analytics divisions.
The company has recently transformed its business by shifting its focus to areas such as cloud services, artificial intelligence, analytics and security which have been more profitable than its traditional business. At the same time, IBM has scaled down its hardware and services business in order to dedicate more resources to these emerging technologies.
The company is calling the new areas it has decided to focus on its “strategic imperatives” as they have allowed it to remain relevant in a shifting market. During IBM's third quarter, revenue from these areas rose by 16 per cent to $8 billion. Its cloud revenue also increased significantly to 44 per cent which is impressive as it had already rose by 30 per cent during the second quarter of 2016.
However, IBM's shares are still down and the company has just experienced its 18th straight quarter of declining revenue. The company's shares were down by 3.1 per cent and were valued at $150.60 per share during after-market trading.
In order to build up its strategic imperatives, IBM has made a number of acquisitions during 2016 which include the Weather Company and Truven Health. So far this year, the company has spent $5.45 billion on new acquisitions alone which is much higher than the $821 million it spent on acquisitions during the same period in 2015.
IBM has invested a great deal in its cloud business and this coupled with the shift to a subscription-based as a-a-service model have caused its operating gross margin to fall by 2.1 percentage points to 48 per cent during the third quarter.
Martin Schroeter, IBM's Chief Financial Officer explained how expanding its cloud business has affected the company, saying: “We're building cloud data centres which don't come online at 90 per cent utilisation, you build utilisation as you ramp.”
Overall IBM has outperformed analysts' estimates, with its revenue falling slightly to $19.23 billion during the third quarter which is only slightly below where it stood last year at $19.28 billion during the same time period. The company's net income also fell to $2.85 billion from $2.95 billion.
While IBM's financials may have taken a hit this quarter, the company has made a great deal of headway in transitioning from its traditional business into new areas that promise significant growth going forward.
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