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How IBM’s Technology Segment Performed in Q4

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Jan. 25 2019, Updated 3:35 p.m. ET

Hybrid cloud offerings

IBM (IBM) stock got a boost from the better-than-expected guidance for fiscal 2019. Technology Services and Cloud Platforms is IBM’s largest operating segment. The segment generated $8.9 billion in revenues in the fourth quarter, which exceeded Factset’s estimate of $9.04 billion. Although the segment exceeded analysts’ estimates, the revenues fell 3% YoY (year-over-year.)

Hybrid cloud services drove the strategic imperative revenues in the Technology Services and Cloud Platforms segment, which grew 13%. IBM is a leader in the hybrid cloud space. As the above chart shows, the cloud revenues in the Technology Services and Cloud Platforms segment grew 22% to $2.4 billion. The cloud software-as-a-service revenue annual run rate was $8.0 billion.

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Red Hat and IBM’s hybrid cloud position

To augment IBM’s leadership position in the hybrid cloud space, the company announced the strategic acquisition of Red Hat in October for $34 billion. Before the acquisition, IBM partnered with Red Hat to build an open source cloud in 2017. Red Hat, known for Linux OS (operating system), is an open source software provider.

Companies (XLK) are rapidly migrating to open source software. Companies want to avoid proprietary software and have the freedom to change their systems at their convenience. Another reason for open source software’s rising popularity is that it allows businesses to lower their software costs.

Microsoft (MSFT) explained the growing prominence and the importance of hybrid cloud in the dynamic technology space. Microsoft said, “Hybrid is essential in a world of AI and IoT as we move towards an Intelligent Cloud and Intelligent Edge working together.” Microsoft aims to capture the hybrid cloud through its Azure Stack offering. Amazon (AMZN), the undisputed leader in the cloud space, is also trying to make its presence felt in this space through partnering with VMware (VMW).

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