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Inside IBM’s Financial Performance in 2Q17

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Cloud ruled strategic imperatives

As we’ve discussed so far in this series, International Business Machines’ (IBM) fiscal 2Q17 results repeated its no revenue growth trend, marking the 21st consecutive quarter of revenue declines.

In 2Q17, IBM’s Strategic Imperatives segment’s growth seemed to falter, after having been a ray of hope. Although it grew 7% in constant currency terms to $8.8 billion in fiscal 2Q17, this growth wasn’t sufficient to offset the fall in IBM’s legacy businesses.

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In light of IBM’s Strategic Imperatives growth last quarter, it’s clear that the segment’s growth is slowing down. The majority of growth in this segment came from the cloud.

Investment in new technologies

IBM’s GPM (gross profit margin) is falling, standing at 45.6% in 2Q17, compared with 47.9% in 2Q16. Its diminishing gross margin calls into question the common notion of registering growth by investing in key areas like the cloud, IoT (Internet of Things), and AI (artificial intelligence), which are expected to drive the $13 trillion in spending forecast during the next computing cycle.

The fall in IBM’s gross margin, as expected, had an impact on the company’s EPS (earnings per share). Before 2014, IBM hadn’t reported a fall in profits since 2003. Although IBM’s EPS beat analysts’ estimates, it was largely due to a relatively lower tax rate—something that isn’t feasible in the long term.

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