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What to Expect from IBM’s 3Q17 Earnings

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Part 10
What to Expect from IBM’s 3Q17 Earnings PART 10 OF 15

Could the Cloud Maintain Its Dominance of IBM’s 3Q17 Earnings?

Growth in the Strategic Imperatives segment

Earlier in this series, we discussed the performance of IBM’s (IBM) Strategic Imperatives segment. In this article, we’ll see how the cloud contributes to the growth in this segment’s revenues.

Within IBM’s Strategic Imperatives segment, security is the largest contributor. In 2Q17, security and analytics each grew 4%, and mobile registered 27% growth. Its cloud revenues grew 15% to $3.9 billion and on a constant currency basis, this growth was 17.0% to $3.9 billion.

Could the Cloud Maintain Its Dominance of IBM’s 3Q17 Earnings?

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IBM’s cloud-as-a-service run rate rose 32.0% in constant currency terms and reached an annual run rate of $8.8 billion in 2Q17. IBM’s cloud revenues have surged and developed to become a $15.0 billion annual business, accounting for 20% of IBM’s overall revenues.

IBM’s scant presence in IaaS space raises concerns

In late September, Gartner released its first report on the state of the IaaS (infrastructure-as-a-service) public cloud computing market. As has been the case in the past few quarters, Amazon (AMZN) and Microsoft (MSFT) occupied the first and second positions in the IaaS cloud space. Surprisingly, IBM wasn’t featured in this list.

A likely explanation of IBM’s absence from Gartner’s top five list is that the majority of its cloud offerings are in the SaaS and PaaS space. IBM’s lack of IaaS offerings paints a dim picture, as Gartner is of the view that the IaaS segment is likely to outpace SaaS and PaaS growth in the next five years.

In IBM’s upcoming 3Q17 earnings, we will learn whether IBM bucks this trend and posts double-digit growth in its cloud offerings, or whether it remains in the status quo.

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