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IBM's 2Q15 Earnings: What They Mean for Investors

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IBM's 2Q15 Earnings: What They Mean for Investors PART 1 OF 11

How Did IBM’s Global Business Services Perform in Fiscal 2Q15?

IBM’s GBS fell 12% YoY

In IBM’s 2Q15 earnings series, we discussed that IBM (IBM) didn’t successfully record any revenue growth in fiscal 2Q15. This trend has been observed for the past 13 consecutive quarters. In fiscal 2Q15, IBM’s GBS (Global Business Services) revenue posted a 12% YoY (year-over-year) fall to $4.3 billion. On a constant currency basis, this fall was 3%. The fall in growth was primarily due to the fall in the traditional packaged applications and back office implementation.

How Did IBM’s Global Business Services Perform in Fiscal 2Q15?

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In its fiscal 2Q15 filings, IBM restated its 2Q14 segment revenue to reflect the shift of Global Process Services from GTS (Global Technology Services) to GBS (Global Business Services).

Growth in business analytics and cloud

IBM also stated that double-digit growth in its digital front office, that includes business analytics and cloud offerings, managed to offset the fall in its packaged implementations to some extent. “Packaged implementations” refer to the onsite perpetual license. In fiscal 2Q15, digital analytics and cloud reported 10% and 50% growth in their revenue, respectively. On a constant currency basis, this growth was 20% and 70%, respectively.

Cloud preference is hurting the traditional back office implementation business

In its fiscal 2Q15 earnings release, IBM stated that its customers are moving away from big on-premise ERP (enterprise resource planning) projects towards smaller projects that have cloud, mobility, and analytics as their core focus. As a result, its traditional back office implementation business has suffered.

IBM stated that cloud revenue achieved $4.5 billion in annual run rate in fiscal 2Q15—compared to $2.8 billion in 2Q14. IBM, apart from acquisitions, adopted the partnership route to make sure that its strategic imperatives continue to drive growth. It entered into a partnership with Apple (AAPL) to expand its software, services, and consulting business in the enterprise market. It joined hands with Twitter (TWTR) to solidify its presence in the big data space. IBM also partnered with SAP AG (SAP) and Tencent to cater to the cloud space.

You can consider investing in the iShares US Technology ETF (IYW) to gain exposure to IBM. IYW invests about 4.20% of its holdings in IBM.

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