IBM Finally Returns To Growth, But It's Not All Good News

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Although IBM's revenue decreased 1% year-over-year in 2017, it rose by about 3.5% year-over-year in Q4 to $22.5 billion, according to the company's earnings call Thursday.

To counter a slowdown in its legacy hardware and software businesses, IBM has in recent years targeted high-margin "strategic imperatives" such as cloud computing, cybersecurity and data analytics that flow across its five business units.

The company also notes that it took a $5.5 billion charge because of the enactment of the U.S.'s Tax Cuts and Jobs Act.

The strong Q4 performance breaks a 23 quarter precedent of lackluster earnings for the company.

While achieving quarterly growth is noteworthy, IBM is chasing what it sees as a more significant milestone: getting more than half its revenue from so-called strategic imperatives - newer technologies such as AI that customers can access in the cloud. Schroeter said cloud business has come a long way from the $7 billion revenue it saw a few years back.

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When Ms. Rometty took the CEO reins from Samuel Palmisano in January 2012, revenue started slipping nearly immediately and the threat of cloud computing to IBM's traditional businesses became evident.

"Our strategic imperatives revenue again grew at a double-digit rate and now represents 46 percent of our total revenue, and we are pleased with our overall revenue growth in the quarter", said Ginni Rometty. "Looking ahead, we are uniquely positioned to help clients use data and AI to build smarter businesses". The idea is that more recent information is, generally speaking, more accurate and can be a better predictor of the future, which can give investors an advantage in earnings season. Ms. Rometty purchased cloud-computing platform SoftLayer Technologies Inc. the following year and committed to developing Watson into a flagship offering. "In fact, it is an enduring and growing franchise", Schroeter said. Revenue of $19.15 billion not only topped analyst estimates by roughly $550 million, it marked a year-over-year revenue decline of only 0.4%.

On Thursday, IBM's shares ended at $169.12, up slightly from the previous day's close of $168.65. In October, the company had flagged a possible return to growth and since then its stock has rallied about 16 percent, including about 10 percent so far this year.

IBM, short for International Business Machines and headquartered in Armonk, NY, employs an estimated 380,000 people globally.

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