IBM cloud services drive higher-than-expected Q4 revenues

IBM has undergone a business transformation in recent years, focusing on artificial intelligence, big data and cloud computing. Following a positive Q4 earnings report, it seems the move is paying off

Income generated by IBM's cloud computing services was the major contributing factor in its higher-than-expected revenue for the quarter

On January 22, IBM posted above-expectation earnings and revenues for the final quarter of 2018, prompting a seven percent hike in the company’s share price. Recording an income of $21.8bn, the news has boosted investor confidence, with the company looking to move into a new period of growth.

The optimism surrounding the Q4 earnings report owes much to IBM’s cloud computing business

Though revenue did decline for the third consecutive quarter, it still exceeded predictions. “In the quarter we expanded both gross margin and pre-tax income margin,” said James Kavanaugh, Senior Vice President and Chief Financial Officer at IBM. Earnings per share of $4.87 surpassed estimates by five cents.

Over the course of 2018, takings of $79.6bn reflected an increase of one percent year-on-year – though this translated to a flat year when adjusted for currency fluctuations. It marks the first time in a number of years that the company has managed to expand revenue, operating income and earnings per share all at the same time.

The optimism surrounding the Q4 earnings report owes much to IBM’s cloud computing business, which along with social, mobile and analytics made up half of the company’s revenue in 2018. Alone, cloud income of $19.2bn was up 12 percent compared with 2017.

During the final quarter of last year, IBM announced its plan to acquire Red Hat in a deal worth $34bn, incorporating the software company into IBM’s Hybrid Cloud division – a deal that “propels IBM as a leading cloud provider,” according to KeyBanc Capital Markets’ analyst Arvind Ramnani. Back in December, Big Blue also struck a partnership with Samsung to manufacture 7nm chips for the firm’s future technology developments.

IBM has followed last year’s positivity with a lively start to 2019, striking several deals connected to the company’s cloud network. Accompanying the release of the US firm’s Q4 results was the news that BNP Paribas has agreed to extend its contract for a further eight years to continue developments to its cloud strategy.

“Major clients worldwide, such as BNP Paribas, are turning to the IBM Cloud and our unmatched industry expertise to transform their businesses and drive innovation,” commented Ginni Rometty, IBM Chairman, President and CEO.

In January, IBM also confirmed a partnership with Vodafone in support of the next-generation of technological advances. The deal sees Vodafone pay $550m to IBM under an eight-year managed-services agreement. In addition, a $325m contract with Juniper Networks will see IBM assist in managing the technology giant’s existing infrastructure.

Times have been tough for IBM shareholders in recent years. Up until the fourth quarter of 2017, they had to put up with more than five years of falling revenue. The latest earnings report, however, as well as the company’s decision to embrace cloud computing, provides plenty of cause for optimism.