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IBM Focuses on Blockchain Technology

Posted on Thursday, May 5th 2016

For the recently reported quarterly results, IBM’s (NYSE: IBM) restructuring continued to translate into declining revenues. This was the sixteenth straight quarter of declining revenues for IBM. Analysts believe that the trend will continue through the end of the year as IBM continues to reorganize its portfolio to move away from computer hardware sales to focus on “strategic imperatives”, which include the cloud, analytics, and mobile computing focused businesses in multiple sectors including healthcare and financial services.

IBM’s Financials
IBM’s first quarter revenues fell 5% over the year to $18.7 billion, ahead of the market’s expectations of $18.29 billion for the quarter. EPS of $2.35 was also ahead of the Street’s projections of $2.09 for the quarter. On a constant currency basis, IBM’s revenues would have reported a 2% decline over the year.

By segment, revenues from Cognitive Solutions fell 2% over the year to $3.98 billion. Global Business Services revenues declined 4% to $4.12 billion. Revenues from the Technology Services & Cloud Platforms fell 2% to $8.42 billion while Systems revenues reported the biggest decline at 22% to $1.68 billion. Global Financing revenues were down 11% to $410 million and revenues from other sources fell 2% to $66 million. This was the first quarter that IBM broke out revenues from new reporting segments. The Cognitive Solutions segment includes its Watson project.

Overall, IBM is seeing strong benefit from its cloud-based investment strategies. During the quarter, revenues from its strategic initiatives, which includes the cloud, analytics, and engagement initiatives, grew 14% over the year. Total cloud revenues grew 34% and for the trailing twelve-month period, Cloud delivered revenues of $10.8 billion. The annual exit run rate for cloud delivered as a service alone has grown to $5.4 billion from $3.8 billion a year ago. Among other strategic investments, revenues from Analytics have grown 7%, mobile business 88%, and security revenues have increased 18% over the year. Together, these strategic imperatives now account for 35% of IBM’s revenues, compared with a 22% share two years ago. IBM is targeting to grow this segment to $40 billion revenues by 2018.

For the current year, IBM projected an EPS of at least $13.50 and an EPS of $2.85 for the current quarter. The market was looking for an EPS of $3.44 for the current quarter.

IBM’s Cloud Focus

During the quarter, IBM remained focused on its Cloud segment. Last week, it announced new services that will help companies design and develop blockchain technology in a secure environment in the cloud. Blockchain is the technology behind bitcoin and is a digital tool that helps with recording and verifying transactions. Tech gurus believe that the technology will simplify the process of building cost-efficient business networks without requiring central control. It is already being explored by major Wall Street players like Goldman Sachs as a mechanism to solve financial market inefficiencies.

IBM’s new service will help organizations work on blockchain networks that will run securely in the cloud. It is doing that by providing cloud services with the highest Federal Information Processing Standards and Evaluation Assurance Levels to help the government, financial services, and healthcare sector to leverage blockchain technology. It also opened IBM Garages in New York and London that are dedicated research labs focused on helping clients design and develop blockchain networks. IBM’s move on blockchain technology will help strengthen its presence in the fintech markets as it is the first company to have developed and released a production-scale operating environment for the technology that meets such high compliance standards.

It also recently announced an expansion of its flash storage portfolio that will help clients quickly extract value from data. The new all-flash array products come with a minimum latency of 250 microseconds for accessing data for cloud-based applications and workloads. Called the FlashSystem A9000 and A9000R, the products will come fully configured to help drive down implementation costs. They are built on grid architecture to provide easy scaling up to the petabyte range and will include data reduction features such as pattern removal, deduplication, and real-time compression.

Clearly, IBM is ensuring that its technology is far superior to its competitors. The worrying factor though is the speed at which IBM is transitioning. Its stock is trading at $144.25 with a market capitalization of $138.47 billion. It touched a 52-week high of $174.44 in May last year. It has recovered from its 52-week low of $116.90 that it fell to in February this year.

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