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IBM’s Cognitive Solutions Segment Grew in Q4

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Cognitive Solutions grew 2%

Previously in this series, we discussed how IBM’s (IBM) Technology Services and Cloud Platforms segment performed in the fourth quarter. Now, we’ll discuss how the Cognitive Solutions segment performed in the fourth quarter. IBM’s Cognitive Solutions segment’s revenues were flat YoY (year-over-year) in the fourth quarter. On a currency adjusted basis, the segment’s revenues grew 2% to $5.5 billion. The revenues exceeded analysts’ estimate of $5.27 billion. The strategic imperatives and cloud revenues increased 9% and 5% to $3.7 billion and $0.7 billion, respectively. The cloud software-as-a-service revenue annual run rate was $2.0 billion.

IBM’s Cognitive Solutions segment, which includes software solutions, addresses strategic areas like analytics, security, AI, and blockchain. The segment also includes transaction processing software, which is utilized by banks and airline reservation systems.

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IBM’s software growth trails the market

Higher sales of IBM’s DB2 (database) software offerings and a 4% increase in hybrid cloud integration software drove the growth in the Cognitive Solutions segment. However, IBM’s software growth still lags the enterprise software market’s (IYW) forecast. According to Gartner, enterprise software, which is driving most of the IT spending, will likely increase 9.9% in 2018 and 8.3% in 2019.

Better deal closings for the Transaction Processing Software segment also helped. After a fall of 10% in the third quarter, transaction processing revenues fell 1% in the last quarter. According to IBM, “In Transaction Processing Software, we capitalized on the strong pipeline of larger transactions we discussed entering the fourth quarter, driven by our clients’ buying cycles.”

ETF discussion

The iShares Edge MSCI USA Value Factor ETF (VLUE) has 3.2% weight in IBM stock. Other major IT companies included in VLUE’s holdings are Intel (INTC) at 6.46%, AT&T (T) at 7.8%, and Micron Technology (MU) at 2.55%.

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