IBM experiences drop in revenue across nearly all segments

IBM has experienced a drop in overall revenue for the first quarter of 2016 and the majority of its segments, although it did have a significant increase in cloud revenue during the period.

"We are pleased with the progress we have made helping our clients apply new cognitive solutions and hybrid cloud platforms," says Ginni Rometty, IBM chairman, president and chief executive officer.

"IBM has established itself as the industry leader in total cloud, analytics and cognitive, all of which helped drive our strategic imperatives revenue growth at a strong double-digit rate, substantially faster than the market," she says.

Martin Schroeter, IBM senior vice president and chief financial officer, says, "In the first quarter, we invested $3.6 billion in acquisitions and capital expenditures, and returned $2.2 billion to shareholders through dividends and gross share repurchases.

"We will continue to invest as we transform our operations, expanding our industry expertise and our cognitive and cloud capabilities."

IBM's strategic imperatives

First-quarter total revenues for IBM dropped 5% to $18.7 billion, while revenues from the company's strategic imperatives - cloud, analytics and engagement - increased 14% year to year.

Total cloud revenues (public, private and hybrid) for the quarter increased 34%. Cloud revenue over the trailing 12 months was $10.8 billion. The annual exit run rate for cloud delivered as a service - a subset of the total cloud revenue - increased to $5.4 billion from $3.8 billion in the first quarter of 2015.

Revenues from analytics increased 7%, revenues from mobile increased 88%, and from security increased 18%, according to the company.

Expectations and explanations

IBM had previously expected a free cash flow realisation of GAAP net income which implied a full-year free cash flow range of $11 billion to $12 billion. The company now expects free cash flow to be at the high end of that range at the same base level of operating (non-GAAP) EPS.

The decrease in the company's pre-tax income was primarily the result of increased expenses for workforce transformation, real estate actions, and actions in Latin America, which totaled nearly $1.5 billion, according to IBM.

Breaking the results down into segments

As announced in February during the company's Investor Briefing, IBM has revised its financial reporting structure to reflect the transformation of the business and provide investors with increased visibility into the company's operating model. This means disclosing additional information on its strategic imperatives revenue by segment.

Beginning with the first-quarter 2016, IBM's business segments and results are:

• Cognitive Solutions (includes solutions software and transaction processing software): Revenues of $4.0 billion, down 1.7%. Solutions software grew, led by security and analytics solutions, including strong growth in the Watson businesses, according to IBM.
• Global Business Services (includes consulting, global process services, application management): Revenues of $4.1 billion, down 4.3%. Strategic imperatives revenue within the segment was up 19% and generated nearly one-half of segment revenue.
• Technology Services and Cloud Platforms (includes infrastructure services, technical support services, integration software): Revenues of $8.4 billion, down 1.5%. Growth of 41% in strategic imperatives revenue within the segment was driven by hybrid cloud infrastructure engagements, IBM says.
• Systems (includes systems hardware and operating systems software): Revenues of $1.7 billion, down 21.8%.  Revenue reflects z Systems product cycle dynamics; segment gross profit margins increased, IBM says.
• Global Financing (includes financing and used equipment sales): Revenues of $410 million, down 11.2%.