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IBM Earnings: Revenue Slump Continues As Cloud Sees Growth

Big Blue’s leaders were encouraged by strong performance in the cloud division that will soon incorporate Red Hat’s financials

Eight days after completing the largest deal in the company's storied history, IBM posted quarterly financials Wednesday buoyed by growth in the cloud and cognitive systems division that Red Hat will soon be part of.

Big Blue's overall earnings showed revenue slumping for the fourth straight quarter to $19.2 billion, a year-over-year decline of four percent.

Results for the second quarter that ended June 30 were weighed down by the back-end of a Z mainframe cycle and poor performance in storage but stabilized by the high-value cloud segment that represents IBM's most-strategic priority, IBM CFO Jim Kavanaugh told investors.

[Related: IBM Disappoints Investors In Q1 With Revenue Slump]

Completing the acquisition of Red Hat in the quarter was an "important milestone for IBM and one that significantly will impact the cloud landscape," Kavanaugh said.

Red Hat's open cloud technologies will add power and flexibility to IBM's innovations and industry expertise, he said.

That combination of technologies will drive what IBM sees as "the next chapter" of cloud adoption, which involves "shifting mission critical work to cloud and optimizing everything."

That requires a hybrid, multi-cloud, open approach, he said.

IBM will update its financial forecast in a few weeks with numbers taking into account the Red Hat business, Kavanaugh said.

The Cloud and Cognitive Software business delivered "strong revenue performance" with 5 percent growth to more than $5.6 billion in sales, Kavanaugh said.

One of the three divisions of that business, Cloud and Data Platforms, was up 7 percent, with broad growth led by "several newer offerings." Kavanaugh highlighted strong hybrid cloud sales that leverage IBM Cloud Private technology built on open source frameworks.

The two other divisions also performed well—cognitive applications were up 5 percent, and transaction processing platforms up 4 percent.

Earnings per share of $3.17 beat Wall Street's expectations of $3.07. And revenue came in just as analysts had expected.

With the beat, IBM shares jumped after the bell closed from a close of $143.07 to a high of 148.50. But investors did a double take after digesting the financials, and the stock fell hours later to $140.85 at the time of this publication.

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