IBM Q1 2015 Revenue Drop Extends Three-year Losing Streak, Cloud Sales Spike to $7.7 Billion

IBM (IBM) recorded its 12th consecutive quarter of declining sales in Q1 2015, posting a 12 percent drop in revenue to $19.6 billion and a 5 percent drop in net income to $2.33 billion. Per share profit climbed to $2.35 from $2.29 a year ago amid fewer outstanding shares in the period and including net losses from the vendor’s discontinued Microelectronics operation.

The bright spots for IBM were in its cloud revenue, which grew by 75 percent to $7.7 billion, and its System z mainframe revenue which exploded 118 percent from last year. Still, most of the vendor’s business units underperformed.

For more than a year, IBM chief executive Ginni Rometty has warned investors the vendor’s transition from hardware-reliant to a software and services provider for the cloud, analytics, mobile and security would prompt lower sales figures but higher profit potential.

Last month, Rometty told investors that in the next three years, IBM plans to turn $4 billion in spending on its “strategic imperatives,” namely analytics, cloud, mobile and security, into some $40 billion in sales, or 44 percent of 2018’s $90 billion in expected revenue. Five years ago, IBM’s analytics, cloud and mobile businesses together amounted to about 13 percent of the vendor’s sales, a percentage that more than doubled at the start of this year to some 27 percent of its sales.

“In the first quarter we had a strong start to the year,” Rometty said of the vendor’s Q1 2015 performance. “Our strategic imperatives growth rate accelerated, demonstrating the power of our offerings in these new opportunities and contributing to improved revenue performance. Our focus on higher value through portfolio transformation and investment in key areas of the business drove continued margin expansion,” she said.

Taken as a group sales of IBM’s so-called strategic imperatives increased by some 30 percent, according to IBM chief financial officer Martin Schroeter. Specifically, analytics grew by about 20 percent, social more than 40 percent, and mobile more than four times, he said.

Here’s more detail on IBM’s Q1 2015 performance:

• Global Services revenue down 12 percent
• Software revenue down 8 percent to $5.2 billion
• Middleware sales down 5 percent to $3.5 billion
• Systems hardware sales down 23 percent to $1.7 billion
• System z mainframe server sales up 118 percent
• Power Systems sales down 3 percent
• System Storage revenue down 8 percent
• Global Financing sales down 10 percent to $0.5 billion

IBM said it ended Q1 2015 with $8.8 billion of cash on hand. During the quarter, IBM bought back $1.2 billion of its shares and paid out $1.1 billion in dividends. The vendor said its balance sheet remains strong and believes the company is well positioned for the long term.

IBM said it expects full-year 2015 GAAP diluted earnings per share of $14.17 to $14.92.