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IBM Sees Cloud, Security Revenue Soar In Q2

Big Blue saw its strategic imperatives, led by cloud and security, for the first time contribute more than half of total revenue. Services business halted its decline in the quarter

Cloud computing and other emerging technologies are still driving major growth for IBM, the company revealed in its latest quarterly earnings release on Wednesday.

Big Blue's so-called "strategic imperatives" — primarily cloud, analytics and security — grew 26 percent from the previous year, and for the first time accounted for more than half of all revenue for a quarter, CFO James Kavanaugh told investors in a second-quarter earnings call.

Those high-growth businesses contributed $10.1 billion to IBM's total quarterly revenue of $20 billion—an overall 4 percent improvement over the same quarter of the previous year. The company also reported GAAP earnings per share from continuing operations of $2.61 for the quarter.

[Related: IBM Credits Cloud, AI And Industry Expertise For Second Consecutive Quarter Of Growth]

Cloud sales — which includes hardware, software and services — were up 20 percent year-over-year to $4.7 billion. Security products surged by 81 percent, to $1 billion in the quarter, powered by the latest z14 mainframe that delivers pervasive encryption.

Kavanaugh said IBM continues to look to differentiate itself with "innovative technology, deep enterprise expertise and trust and security, all delivered around an integrated model."

Acquisitions remain integral to that strategy, he said, although "we are very confident in the portfolio lineup that we have here today, around each of our segments."

"We've done a lot of work around remixing capital and investment to rebuild the portfolio that we have today," Kavanaugh told investors.

The financial results for the quarter ending June 30 were better than Wall Street expected, buttressed by growth in hardware sales and improvements in a services business that had steadily declined in recent quarters.

Systems performed well overall, with 4 percent growth—the strongest in years. It was the strategic imperatives that fueled those hardware sales, Kavanaugh said.

IBM is still benefitting from a mainframe business that’s the "most-enduring platform you've seen out there," Kavanaugh said.

And the Services business that accounts for 60 percent of IBM revenue returned to two percent growth for both of its two main segments.

Global Business Services, which includes consulting, application management and process services, saw $4.2 billion in revenue; Technology Services and Cloud Platforms, including infrastructure services, technical support and integration software, added another $8.6 billion.

Cognitive solutions fell flat, though analytics and industry verticals performed well within that category.

Kavanaugh said more than 80 percent of revenue within Cognitive is realized by subscriptions, and "SaaS has a longer time to value and realization."

IBM still has "more work to do" in repositioning its business offerings, workforce and reinventing the company. As part of that strategy, IBM will keep investing in artificial intelligence and blockchain, he said.

While Big Blue's transformation remains an ongoing project, the company is "realizing acquisition synergies and driving operational efficiencies," he said.

Growth in revenue, gross profit, income and earnings-per-share led to a jump in IBM's share price, from a close on Wednesday of $144.52 a share to $149.19 at time of publication.

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