IBM sees cognitive solutions, tech services and cloud platform revenue declines

IBM's short streak of revenue growth ended as third quarter revenue fell short of expectations.

IBM's third quarter revenue missed expectations as its cognitive solutions and technology services and cloud platforms units saw declines from a year ago.

Big Blue reported earnings of $2.94 a share on revenue of $18.8 billion, down 2 percent from a year ago. Non-GAAP earnings were $3.42 a share.

Wall Street was expecting IBM to report third quarter earnings of $3.40 a share on revenue of $19.1 billion.

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IBM has been heavily focused on growing artificial intelligence as a business. Beyond Watson, IBM has been positioning itself as a management layer for both AI and cloud. Meanwhile, Ginni Rometty, speaking at the Gartner Symposium/ITXpo in Orlando said about AI:

"We have to usher these technologies into the world," Rometty said. "They will change 100% of jobs, and that is a scary thing ... They will replace some number of jobs, but not all jobs."

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On the bright side of the third quarter, IBM said it is expanding its gross margins with its best performance in three years. Rometty talked up the company's strategic imperatives and promise of technologies such as AI, blockchain, analytics and security.

While its cognitive and cloud units had overall sales declines, IBM did note that its as-a-service run rate is now $11.4 billion.

By the numbers:

  • Cognitive solutions saw revenue of $4.1 billion, down 6 percent from a year ago. Watson health, security and analytics showed growth. That unit also includes transaction processing software. Z middleware struggled in the quarter and cloud revenue fell 2 percent.
  • Technology services and cloud platforms delivered third quarter revenue of $8.3 billion, down 2 percent from a year ago. Cloud revenue grew, but infrastructure services, technical support services and integration software brought the unit down.
  • Global business services saw revenue of $4.1 billion, up 1 percent from a year ago as consulting rebounded. Digital strategy and cognitive process transformation drove gains.
  • Systems revenue was $1.7 billion, up 1 percent, and Power and IBM Z fared well.

As for the outlook, IBM said it will deliver non-GAAP earnings of at least $13.80 a share for 2018.

The following charts highlight the moving pieces within IBM and the overall mix.

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