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IBM Delivers Disappointing Quarter, But Interesting Future Moves

Posted on Wednesday, Aug 13th 2014

IBM’s (Nasdaq: IBM) recently reported quarter may have been disappointing, but Big Blue does not seem too concerned. After entering into an agreement with Apple, they recently announced the acquisition of Lighthouse Software. They seem to be going all guns blazing into the quarters to come.

IBM’s Financials
But first, the disappointments. IBM’s second quarter revenues fell 2% over the year to $24.4 billion, falling short of the market’s expectations of $24.13 billion. This was the ninth consecutive quarter of revenue decline. EPS of $4.32 was ahead of the Street’s projections of $4.30 for the quarter.

By segment, hardware revenues fell 11% to $3.3 billion while software segment grew 1% over the year to $6.5 billion. Revenues from the Global Services segment fell 1% to $13.9 billion with Technology Services falling 1% to $9.4 billion and Business Services reporting a 2% decline to $4.5 billion. Global financing revenues improved 4% to $504 million.

By region, revenues from the Americas’ fell 1% to $10.6 billion while EMEA revenues improved 1% to $7.9 billion. APAC revenues fell 9% to $5.3 billion.

For the current year, IBM reiterated their expectation of an EPS of at least $18.00.

IBM’s Apple Tie-Up
In a landmark deal last month, IBM announced a strategic tie-up with Apple. As part of the deal, Apple and IBM will work together to deliver several Big Data tools focused on the iPad. The mobility focused agreement is expected to help Apple expand the presence of their mobility devices, particularly the iPad within enterprises. Currently, tablet penetration in organizations is a modest 20%. The tie-up with IBM is expected to help Apple drive this penetration higher as IBM deploys nearly 100,000 of its employees to this effort.

Together, the two will deliver more than 100 industry-specific enterprise solutions that will include native apps developed exclusively for use on the iPhone and iPad. IBM also plans to enhance their cloud services and optimize them for iOS so that organizations will be able to benefit from services such as device management, security, analytics, and mobile integration. IBM will also develop packaged offerings for device activation, supply, and management.

Through the deal, both Apple and IBM will be able to address the market requirement of providing secure and user friendly mobility apps and devices to the enterprise segment. Analysts may be concerned about the cultural fit of the two companies, but Tim Cook is an IBM alumnus and may be able to handle that just fine. Given the deal’s scale, if these two were to pull it off, it will be a big achievement for the industry.

IBM’s Acquisitions
Additionally, IBM also made some big acquisitions recently. Earlier this week, they announced the acquisition of cloud-hosted security services provider Lighthouse Security Group. Lighthouse’s cloud and mobility-focused security platform is known as Gateway. Late last month, IBM had acquired CrossIdeas, which is also a security firm focused on providing enterprise based security services for identity controls and access management for cloud and on-premise systems. Terms of the deals were not disclosed.

The acquisition of these two firms will help IBM strengthen their security services offerings. According to a Gartner report, IBM is the third largest security services vendor lagging behind Symantec and McAfee. IBM will be able to make significant advances by leveraging the acquisitions to expand their suite of security software and services for identity management.

IBM’s stock is trading at $187.35 with a market capitalization of $187 billion. It touched a 52-week high of $199.28 in April this year.

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