IBM Denies Wrongdoing As SEC Probes Cloud Accounting Practices


The U.S. Securities and Exchange Commission is digging into how IBM reports revenue from its multibillion-dollar cloud computing services division, according to the company, which said in a Wednesday statement that it stands by its accounting practices.

"IBM's reporting of cloud revenue is the result of a rigorous and disciplined process, and we are confident that the information we have provided has been consistently accurate," Ed Barbini, a spokesman for IBM, wrote in a statement amending its second-quarter 2013 quarterly report to the SEC.

IBM disclosed that the SEC began a formal probe into its cloud accounting practices in May and said it was cooperating with the investigation.

Cloud experts familiar with IBM's business say details are still too thin to gauge what type of impact the SEC probe could have on IBM or its cloud services business. However, Charles King, analyst at market researcher Pund-IT, said any disruption would be negligible given how small IBM's cloud services division is compared to the rest of the company.

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"Accounting for businesses services is complex whether it's cloud services or not," King said.

IBM has been investing heavily in its cloud business since it began selling services in 2007. Most recently it acquired cloud provider SoftLayer Technologies for $2 billion. In June, IBM said it would be reorganizing its cloud services operations, creating a new Cloud Services division that combines SoftLayer with its current IBM SmartCloud offerings.

In its most recent quarterly earnings report, IBM said cloud revenue jumped 70 percent so far this year, and by 2015, cloud-related earnings could be as high as $7 billion.

This is not IBM's first run-in with federal investigators. IBM hammered out a settlement agreement worth $10 million with U.S. regulators in 2011 over charges the company was involved in foreign bribery with government officials in South Korea and China.

Cloud or no cloud, King said, accounting for any multiyear service contract where terms can change month to month is complex.

PUBLISHED JULY 31, 2013

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