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Cloud Stocks: IBM Fails to Impress

Posted on Friday, Oct 23rd 2020

IBM (NYSE: IBM) reported its third quarter results this week that failed to meet the market’s expectations. This was the third consecutive quarter of revenue decline for the company as it struggles to navigate through the global pandemic.

IBM’s Financials
Revenues for the quarter fell 2.6% $17.6 billion, ahead of the Street’s estimates of $14.2 billion. Adjusted earnings of $2.58 a share were in line with market estimates.

By segment, revenues from Cloud & Cognitive Software that includes Cloud & Data Platforms such as Red Hat, Cognitive Applications and Transaction Processing Platforms grew 7% to $5.6 billion. Within the segment, Cloud & Data Platforms grew 20% driven by Red Hat.

Revenue from the Global Business Services (GBS) segment, which includes Consulting, Application Management and Global Process Services, declined 5% to $4 billion primarily due to decline in Application Management and Consulting. Revenue from Global Technology Services (GTS), which includes Infrastructure & Cloud Services and Technology Support Services, declined 4% to $6.5 billion. Revenue from its Systems segment, which includes Systems Hardware and Operating Systems Software, declined 15% to $1.3 billion, and Global Financing revenue declined 20% to $273 million.

IBM is not providing an outlook due to the current market conditions.

IBM’s Partner Network

During the quarter, IBM announced several innovations to Red Hat and Quantum. To extend its open hybrid cloud portfolio, Red Hat introduced new capabilities. OpenShift Virtualization allows clients to migrate and run virtual machines within Red Hat OpenShift. Advanced Cluster Management for Kubernetes that will deliver a robust multi-cluster, policy-based compliance and application management system. The enhancements will allow IBM clients to “build once, deploy anywhere” within the hybrid cloud environment.

For Quantum, IBM announced a roadmap to reach 1,000-plus qubits by 2023. IBM Quantum is the leading quantum computing technology aimed at solving complex problems that the world’s most powerful supercomputers cannot solve. As part of the roadmap, IBM’s team is developing a suite of scalable, larger, and better processors with a 1,000-plus qubit device called IBM Quantum Condor that will house devices even bigger than Condor. The plan is to build a million-plus qubit processor that leverages industry expertise, agile methodology, and is a full-stack quantum computer deployed via the cloud that anyone around the world can program.

IBM also announced an expansion with its partnership with ServiceNow to help companies reduce both operational risks and costs by automating IT operations with AI. As part of the agreement, IBM Watson AIOps and ServiceNow’s IT Service Management (ITSM) and IT Operations Management (ITOM) offerings will be provided in an integrated solution supported by IBM Services’ expertise in enterprise transformation. IBM will also apply its AI capabilities from IBM Watson into the workflows and data from ServiceNow’s Now Platform to leverage automation and drive overall efficiency. The new joint solution will become available later in the year.

IBM’s Acquisitions

IBM continued to acquire during the quarter and announced plans to add WDG Soluções Em Sistemas E Automação De Processos LTDA, also known as WDG Automation, a Brazilian software provider of robotic process automation RPA. Terms of the deal were not disclosed.

WDG Automation is known for its RPA, intelligent virtual agents (IVA) and artificial intelligence software. Its technology has been designed for business users to create automations using a desktop recorder without involving complex coding or IT teams. These software robots can be run on-demand either by the end user or can be scheduled to run using an automated scheduler.

IBM plans to embed WGA’s RPA capabilities into its existing AI-infused automation capabilities across business processes and IT operations. This will allow its customers to have broader access to intelligent automation through software robots and will help IBM deliver more intelligent enterprise workflows.

IBM’s Restructuring

Earlier this month, IBM announced plans to spin off the managed infrastructure services portion of its Global Technology Services unit into a standalone public company, temporarily named as NewCo. Post the spin-off, IBM will become a hybrid cloud platform and AI company with $59 billion in annual revenues, and NewCo will provide managed infrastructure services and generate nearly $19 billion in annual revenue. NewCo will deliver traditional infrastructure outsourcing services, transformational services such as infrastructure modernization, public and private cloud management, security, IoT and edge, and innovation services with data and AI integration. Erstwhile GTS’s technology support services including the entire GBS segment that includes consulting, global process services, and application management services will remain part of the new IBM and will focus on becoming a leader in hybrid cloud platform and AI.

The move will be helpful in improving IBM’s core business financials. It is essentially eliminating its shrinking, low-margin operation that analysts believe is “cannibalizing impact of automation and cloud, masking stronger growth for the rest of the operation”. The entire transaction is expected to be completed by the end of fiscal 2021.

IBM’s spin off into two entities will give it the ability to focus on growing the high growth AI and cloud segments. I think if IBM wants to make it big in this market, it will have to make some bold acquisitions. It should look at companies like Splunk to expand its enterprise analytics services. Within the enterprise cloud, acquisition of ServiceNow could have been an interesting move, but with ServiceNow’s market capitalization at close to $100 billion, IBM may not really be able to afford it. IBM could look at Atlassian to help it get a big break in the enterprise segment. At $50 billion it will still be quite a big buy for IBM.

Its stock is currently trading at $117.37 with a market capitalization of $102.5 billion. It touched a 52-week high of $158.75 in February this year. The market turbulence in March had sent the stock falling to a 52-week low of $90.56.

This segment is a part in the series : Cloud Stocks


. Smartsheet Acquiring Bootstrapped Startups to Drive Growth
. Bootstrapped Unicorn Atlassian is Acquiring Capital Efficient Startups
. Netflix Price Hike Ruffles Competition
. How Will Carbon Black Differentiate?
. ServiceNow Grows Through Addition of Capital-Efficient Startups
. Zendesk and Freshworks Follow Different Acquisition Strategies
. Tableau Grows Through Small Acquisitions
. Open Platform Strategy Stands Intuit in Good Stead
. Will GoDaddy Follow the PaaS Route?
. Adobe Delivers Via PaaS
. A Look at Oracle’s 2018 M&A Activity
. What Apps Will Drive More Traction for Cloudera?
. Slack's App Focus Will Be Key to Post-IPO Success
. IBM Counts on its Cloud and Platform for the Turnaround
. Atlassian Acquires From its PaaS Marketplace
. What Should SAP Acquire to Triple its Value by 2023?
. Expect ServiceNow to Acquire From App Marketplace
. Should Alarm.com Follow a PaaS Strategy?
. How Upwork Can Leverage the Virtual Company Trend
. Qualys Scouting For Acquisitions
. Should SAP Acquire Zendesk or Freshworks?
. HubSpot Counts on its API Strategy
. SurveyMonkey Eyes Acquisitions for Growth
. Workday Wants to Disrupt Cloud Computing Using Machine Learning
. Einstein and Open-Source Platform Lead the Charge for Salesforce
. DocuSign Prepares to Beat Rival Adobe
. Veeva Soars, But Dassault Acquires Medidata for $5.8 Billion
. Tableau Acquisition Signals Massive Analytics Push for Salesforce
. Oracle Joins Hands with Microsoft to Take on Amazon
. GoDaddy is Making Strategic Acquisitions for the Next Level of Growth
. Alteryx Sees Strong Momentum
. Adobe Leveraging Magento and Marketo to Deliver Blockbuster Performance
. Is Slack Overvalued?
. How Will Cloudera Address the Competition?
. Zoom is Not Bothered by Cisco or Microsoft
. Domo Counts on Enterprise Revenue for Growth
. Netflix Plays with Pricing and Games to Attract Subscribers
. CrowdStrike Has a Successful IPO
. Atlassian Crosses the Billion Dollar Revenue Milestone
. ServiceNow Believes Strength Lies in Tie-ups
. Partnerships are the Mantra for BlackLine
. SurveyMonkey Counts on Enterprise Segment for Growth
. HubSpot Soars to a New High
. Intuit Pushes AI to Simplify Tax Filing
. Splunk Sees Strong Cloud Momentum
. Forescout Partners with Big Names
. Smartsheet Tapping into the Government Sector
. Salesforce Continues its Shopping Spree
. Palo Alto Networks Targets the IoT Security Market
. DocuSign Focuses on the Mortgage Sector
. Oracle Brags About Autonomous Database
. Blackbaud Acquires YourCause to Grow Addressable Market
. The Market Expects a Lot More from Adobe
. Anaplan Makes its First Acquisition Post IPO
. Activist Investor Drives Market Interest in Box
. MongoDB's Formula for Success
. Coupa Aims for $1B Revenue
. Dropbox on a Rocky Road
. Medallia Banks on Acquisitions
. IBM Banks on AI
. Time For Skepticism with Netflix
. SAP Riding High on the Cloud
. Amazon's Faster Shipping Hurting its Earnings
. ServiceNow CEO Change Signals Focus on Acquisitions
. Will Google Acquire Fitbit?
. HubSpot Focuses on Its Platform
. BlackLine Partners with Google Cloud
. Rapid7’s Focus on Cloud SIEM Pays Off
. Splunk Bets Big on Data Streaming
. Intuit's QBO Scores Big
. VMware Builds Up With Acquisitions
. Palo Alto Targets $5B Revenue by 2022
. Workday Targeting Procure-to-Pay Cycle
. Will Salesforce Acquire DocuSign?
. Okta Targets Enterprise Customers
. MongoDB Eyeing China With Alibaba Partnership
. Twilio Counts on API Upgrades for Growth
. Adobe Revs up its Experience Platform
. Top 20 for 2020
. Anaplan Sees Expanding Use Cases
. Dropbox Gears Up to Regain Lost Valuation
. Forescout Fails to Deliver
. Enterprise Bet Pays Off for SurveyMonkey
. SAP Bets Big on Experience Management
. Twilio Steps up Investment in 2020 to Preserve Growth Momentum
. Zendesk, Freshworks Focus on Marketplaces and Integrations
. Proofpoint Targets Insider Threats Through Acquisition
. RingCentral's Powerful Partner Strategy Would Augment with PaaS
. Qualys Counts on Google and Microsoft for Growth
. Shopify Soars on Improved Merchant Offerings
. HubSpot Believes in the Importance of PaaS
. BlackLine Remains Focused on SAP Integration
. Recently Public Cloudflare has New Edge
. GoDaddy is on a Shopping Spree
. Intuit Targets Online User Base Through Acquisition
. Should Palo Alto Networks Acquire ZScaler?
. Why Salesforce Buying Vlocity Proves the Growing Importance of PaaS
. Datadog Performing Well Post Recent IPO
. Workday Should Open Up About its PaaS Success
. Anaplan Focuses on API Connectors for its Platform
. Veeva
. Five9 Strengthens its PaaS Focus
. RealPage Brings AI and SaaS to Real Estate
. Splunk Should Open up About its PaaS Metrics
. Okta Benefiting from App Diversity
. Oracle Sees Growth Momentum
. Xero Focuses on a PaaS Strategy
. DocuSign Resilient to COVID-19
. Smartsheet Looking up to Enterprise Customers for Growth
. Paylocity Delivers Solid Results
. Q2 Holdings Expands TAM with Acquisitions
. New Relic Focuses on PaaS
. AppFolio Leverages AI for Product Enhancement
. Will Adobe Open Up About its PaaS Statistics?
. Change Healthcare Pushes APIs
. Dropbox Needs to Share API Metrics
. Upwork Improves Monetization
. MongoDB has Miles to go
. Nutanix Needs to Define a PaaS Strategy
. Cloudera Focuses on Hybrid Cloud
. Atlassian Gears Up for Growth, Unfazed by Covid-19
. Shopify Helps Merchants Pivot to Online Stores
. ServiceNow Steady in Turbulent Seas
. RingCentral Sees Strong Traction
. Twilio Hits 52-Week High Amidst COVID Crisis
. HubSpot Lowers Outlook Amidst Virus Concerns
. Proofpoint Acquiring Even Amidst Crisis
. BlackLine Looks Solid In The Face of Covid-19
. GoDaddy Continues to Acquire
. Qualys Expands Cloud Offerings to Soar to New Highs
. Zendesk Struggling Amidst the Downturn
. Alteryx Bounces Back Despite Low Outlook
. Palo Alto Networks Continues to Acquire
. Workday Extends its PaaS Strategy
. Splunk Rides High on Cloud Initiatives
. Salesforce Partners with Workday to Address the New Normal
. Veeva Scales New Highs
. Is Smartsheet’s Pullback a Buying Opportunity?
. MongoDB Soars Even in the Crisis
. Okta Reiterates Outlook
. Is Anaplan a Prospect for Oracle, SAP?
. Oracle Relies on Autonomous Offerings
. Adobe Shifts its Focus
. Paycom Confident Under Current Conditions
. DocuSign Soars to Record Highs
. Paylocity Acquires Amid Crisis
. Datadog's Integrations and Upgrades Help it Soar
. AppFolio Improves Offerings for Current Conditions
. SurveyMonkey Should Get Into PaaS
. Model N Soars to a Record High
. Appian Focuses on RPA for Growth
. Slack Beefs up its Portfolio
. Coupa Expands into Treasury Services
. CrowdStrike Soars to Record Highs
. Guidewire Expands Cloud Offerings
. Dropbox Should Focus on PaaS
. Talend Expands Data Offering Through Partners
. IBM Expands Cloud Partners
. One Medical Supports COVID-19 Care Digitally
. Microsoft Rides High on Teams and Gaming
. Investors Say Yes to nCino’s IPO
. Nutanix Focuses on Government and Media Verticals
. SAP Rethinks Qualtrics Acquisition
. Tenable Expands Into Industrial Cyber-Security
. ServiceNow Expands Ties with Zoom
. Cloudera Powers its Data Platform with Partnerships
. Atlassian Continues to Acquire from PaaS Ecosystem
. Shopify Soars to an All-Time High
. The PaaS Landscape
. HubSpot Focuses on the Enterprise Segment
. GoDaddy Restructures During COVID
. Akamai's Security Solutions Thriving
. BlackLine Needs a PaaS Strategy
. Twilio - A Successful PaaS Story
. Zendesk Invests in the Future
. Qualys Continues to Acquire Indian Startups
. ZoomInfo Lists Despite COVID-19
. Analysis of Alteryx PaaS Strategy
. Fastly Needs to Diversify from TikTok
. Way to Go, Salesforce
. Intuit Continues to Acquire
. VMware Continues Buying Spree
. Analysis of Five9's PaaS Strategy
. Okta Expands Alliances to Attract Enterprises
. Palo Alto Continues to Acquire
. Analysis of Splunk's PaaS Strategy
. BigCommerce Goes Big with IPO
. Analysis of Workday's PaaS Strategy
. Analysis of Anaplan's PaaS Strategy
. Bill.com Sees Strong Demand
. Analysis of MongoDB's PaaS Strategy
. Analysis of Wix's Platform Strategy
. New Relic Product Upgrades Deliver Growth
. What Should Proofpoint Acquire?
. Smartsheet Should Follow Atlassian’s Example
. Adobe's Relentless Growth Continues
. SurveyMonkey's PaaS Prospects
. DocuSign Acquires Amid COVID
. Paylocity Counts on Video
. The Unstoppable Veeva
. Magic Software Acquires to Expand in Europe
. What Can Cloud Startups Do To Raise Seed Capital in 2021?
. Guardant Seeks to Disrupt Oncology Testing
. Dropbox Adds Security Capabilities
. Domo Growing Steadily
. Nutanix Focuses on the Hybrid Cloud
. IBM Fails to Impress
. Microsoft’s Partnership with Tom Siebel’s C3 AI is Intriguing
. ServiceNow Well-Positioned for Digital Transformation
. Analysis of Shopify’s Long Term Strategy
. HubSpot Rethinks Pricing Model to Support Businesses
. Akamai Investing in 5G Security Solutions
. Twilio Should Provide Developer Marketplace Revenue Metrics
. How can Alteryx Improve its PaaS Strategy?
. Partnerships Ringing in Growth for RingCentral
. Five9 Focuses on AI-based Contact Centers
. Nutanix Builds a Kubernetes PaaS
. Workday and Anaplan Executing Well Amid Pandemic
. BlackLine Expands in Order-to-Cash Market

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