​IBM Soars Over Strong Demand For Its Futuristic Cloud Enabled Technologies

Ong Kai Kiat |

Image via Rosemaryetoufee/Wikimedia

IBM (IBM) had just announced that its total quarterly revenue had declined 1% to $19.2 billion and its earnings per share remains flat at $3.30 but its share price saw a 9% jump from $146 to $159. As an investor, you might be confused by this apparent contradiction but the market is rewarding IBM for its successful transition to the new technological application.

If you can recall, IBM was the first purchase by Warren Buffett in 2011 and he went on to sell one third of his shares in May 2017 with the view that IBM wouldn’t perform in the face of strong competition. This was the dominant market view in the first 10 months of this year which saw the steady 21% decline of IBM’s share price from $181 to $143. We will look into how IBM changed the public view with the latest results.

Major Cloud Gains as IBM Pairs It with Artificial Intelligence

IBM had proven its critics wrong by growing its strategic imperative revenue by 10% to $8.8 billion and generated free cashflow of $2.5 billion over the last quarter. The most impressive growth would be in the cloud space where Amazon (AMZN), Microsoft (MSFT), Google (GOOGL) are the dominant players.

Source: IBM

IBM managed to gain a 20% increase in revenue by enticing its IBM Cloud Solution with cognitive solution such as IBM Watson. IBM Cloud has the unique advantage of being able to integrate public, private, multi-cloud and traditional data centre seamlessly through a single architecture meant for enterprise clients.



Their clients also have the option of purchasing their artificial intelligence and blockchain solutions. IBM noted how they are using AI to reduce the call waiting times for banks and helping resolve queries faster through automatic learning about the product library.

New Mainframe + Blockchain = Security Revenue Explosion

IBM is also experimenting on blockchain with major retailers and banks for food safety and trade finance respectively. Blockchain provides the unchangeable ledger system which allows for greater assurance for its clients. IBM is relying on its upgraded z14 mainframe which is used for critical onsite and offline activities loved by the banks to deliver unique security solution.

This is coming in the era where we have seen continuous reports of security breach from Yahoo to UPS to the US government. Recently, Experian saw its severe price decline after announcing a security breach of its client’s credit information. IBM claims that by combining its security solution QRadar Advisor and AI solution Watson, their clients can find threats 60 times faster than manual investigation and complex analysis went down from 1 hour to less than 1 minute.

On the back of both security and cloud solution, IBM is offering analytics which allows business to measure business performance better across their online business units. It is by offering a full suite of services that allows the new z14 to increase its revenue by 62% and security by 49% over 3 months. On another note, IBM has an effective corporate tax rate of just 11%, which is one of the lowest in corporate world and the average personal tax rate of 30%. This shows the importance of proper tax consulting for businesses.

Buying for the Future

In other words, investors are betting that IBM would be able to grow its strategic imperative revenue from the current 45% of total revenue successfully to replace other shrinking part of its business such as its Global Process Services (GPS). GPS helps businesses in their procurement, finance and administration, human resources management, marketing and it shrunk by 12% on the back of stiff competition.

Analytics, blockchain, artificial intelligence, cyber security are the new growth area and IBM has the advantage of being able to package them as a total solution for businesses. The promise of stronger revenue growth excites investors but at the end of the day, it is the execution capability of Ginni Rometty and team. Based on the current results, they have not disappointed investors.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
GOOGL Alphabet Inc. 1,056.52 4.60 0.44 825,369 Trade
IBM International Business Machines Corp 151.84 0.07 0.05 1,193,025 Trade
AMZN Amazon.com Inc. 1,186.00 29.84 2.58 3,528,011 Trade
MSFT Microsoft Corporation 83.26 0.15 0.18 7,425,603 Trade

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