IBM Q4 edges expectations, as-a-service run rate now $10.3 billion

IBM's fourth quarter topped expectations and strategic imperative businesses were solid, but Big Blue's annual revenue is down for the 7th consecutive year.

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IBM said its as-a-service annual run rate is $10.3 billion exiting the fourth quarter, which was better than expected on earnings and revenue.

Big Blue reported a solid quarter relative to expectations and showed growth in its "strategic imperatives" revenue, which includes analytics, cloud and newer businesses.

The company reported non-GAAP fourth quarter earnings of $5.18 a share on revenue of $22.5 billion, up 4 percent from a year ago. Adjusting for currency, IBM's fourth quarter sales were up 1 percent.

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Wall Street was looking for fourth quarter non-GAAP earnings of $5.17 a share on revenue of $22.06 billion. For 2017, IBM reported revenue of $79.1 billion, down from $79.92 billion a year ago. Revenue has been sliding at IBM. Consider IBM's annual revenue:

  • 2017: $79.1 billion
  • 2016: $79.92 billion
  • 2015: $81.74 billion
  • 2014: $92.79 billion
  • 2013: $98.37 billion
  • 2012: $102.87 billion
  • 2011: $106.9 billion
  • 2010: $99.87 billion

There were a few moving parts in IBM's results. For instance, IBM reported a fourth quarter net loss of $1.14 a share due to a one-time charge of $5.5 billion tied to U.S. tax reform.

For 2018, IBM said it expects revenue growth and margin stabilization.

On a conference call with analysts, CFO James Kavanaugh said the company has repositioned well and is entering 2018 with a "stronger revenue profile than a year ago."

He added:

In 2018, we'll maintain a high level of investment. This is important as we continue to build out capabilities in AI, in cloud, in security and in Blockchain, just to name a few. As always, we'll look for more productivity in our spend base, especially in our Services business, where we'll continue to remix our skills to new opportunities.

IBM said it plans to deliver 2018 operating earnings per share of at least $13.80. IBM also said its capital expenses will rise.

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IBM has been repositioning for businesses such as Watson, cloud and security. These strategic imperative businesses saw fourth quarter revenue of $11.1 billion, up 17 percent from a year ago. Cloud revenue was $5.5 billion, up 30 percent from a year ago.

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In a statement, CEO Ginny Rometty said IBM strengthened its position in cloud, blockchain, big data and artificial intelligence.

By unit for the fourth quarter:

  • IBM's cognitive solutions unit had revenue of $5.4 billion, up 3 percent from a year ago.
  • Global business services delivered revenue of $4.2 billion, up 1 percent.
  • Technology services and cloud platforms reported revenue of $9.2 billion, down 1 percent.
  • Systems revenue was $3.3 billion, up 32 percent due to IBM Z, Power Systems and storage.
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