IBM's Q2 Earnings Highlight Ongoing Transformation

In another mixed-news earnings call, IBM presented financials Monday illustrating its ongoing transformation to a cloud-focused software and services vendor.

Half a year into Big Blue's plan of shifting to capitalize on "greater value in enterprise IT," the storied company continues pushing to "aggressively and decisively" reinvent itself, CFO Martin Schroeter told investors.

"We said from the beginning this will take some time," Schroeter said. "We're confident we're on track for that longer-term trajectory."

[Related: IBM Earnings: Revenue Decline Translates To High Margins]

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Earnings of $3.84 per share were down 13 percent year over year, but still slightly beat Wall Street's expectations. And while IBM's adjusted second-quarter revenue of $20.8 billion was also a tad lower than the previous year's, the "strategic imperative" businesses the company is focusing on showed considerable growth, Schroeter said.

Those strategic imperatives -- data, cloud, analytics, engagement -- together grew more than 30 percent for the second quarter in a row, compared with 20 percent the previous year.

Cloud was the shining star, with 70 percent revenue growth. IBM has notched $8.7 billion cloud revenue over the past year.

"Our cloud business is substantial and growing rapidly," Schroeter said. The cloud market, he added, continues to evolve beyond infrastructure to higher-level data processing capabilities, much as the Internet evolved from browsing to more complete user interactions more than a decade ago.

The growth of IBM's SoftLayer public cloud, now operating in 41 global data centers, "significantly accelerated" this year, and IBM will be building new SoftLayer facilities, Schroeter said.

IBM estimates a run rate for its cloud "as-a-Service" businesses of $4.5 billion.

Analytics in the first fiscal half grew by more than 20 percent, which is "terrific growth on a large revenue base," he said.

And the Watson machine learning platform is developing new markets with its advanced cognitive capabilities, Schroeter said.

While IBM emphasized those financial results that seem to bear out its long-term strategy, investors weren't swayed. Shares fell 4.4 percent in after-hours trading, to $165.64.

Having now divested some of its hardware assets, most recently its semiconductor fabrication division, IBM will continue pushing to grow out and scale those strategic imperative businesses, Schroeter said. The investments include new data centers, products focused on analytics, mobile and social cloud, as well as more partnerships.

IBM's software business, grappling with headwinds from operating systems and middleware, sunk by 3 percent in Q2, to $5.8 billion. Software-as-a-Service and security both returned double-digit growth, however, counteracting an even-greater software decline.

Schroeter said IBM's cloud has yet to hit full scale. Once it does, the services business will start demonstrating margin improvements.

With the "shift to higher value, getting cloud to scale, move to automation and more regions in the global delivery environment, we still have room to improve margins in services," he said.