RESEARCH TRIANGLE PARK – A drop in cloud computing and cognitive (think artificial intelligence) revenues the last three months of 2020 is a reason – perhaps the big reason – why investors sold off IBM shares Thursday evening.

“Definitely weaker than we expected – the transactional on-premises software is still contributing to that (COVID impacts) from a C&C  [cash and carry] perspective but we were surprised that Cloud and Data Platforms didn’t show higher growth as well but seems this was largely seasonal,” Catie Merrill, an analyst at Technology Business Research, tells WRAL TechWire.

But she sees benefits accruing from Red Hat.

“The 2020 cloud revenue growth is at 20% so still a positive testament to RHT synergies made within the last year,” she points out.

Business news site Seeking Alpha was harsher, labeling IBM’s cloud and cognitive segment’s performance as “weak.”

IBM (NYSE: IBM) is staking its future on the cloud after spending $34 billion for Raleigh-based Red Hat in 2019. And for all 2020, Red Hat revenue increased 18%, IBM said in the earnings report.

The cloud and cognitive businesses also are the future for IBM which plans to split in two sometime this year, putting emphasis on those businesses.

But consensus expectations on the Street was $7.18B, SeekingAlpha noted and IBM reported less: $6.8 billion.

On the positive side for the full year,what IBM terms “total cloud revenue” surged 20%.

Howver, the fourth quarter numbers were a mixed bag:

  • “Cloud & Cognitive Software (includes Cloud & Data Platforms which includes Red Hat, Cognitive Applications and Transaction Processing Platforms) revenues of $6.8 billion, down 4.5 percent (down 6.6 percent adjusting for currency),” IBM reported.
  • “Cloud & Data Platforms grew 9 percent (up 6 percent adjusting for currency) led by Red Hat.”
  • “Cognitive Applications revenue was flat (down 2 percent adjusting for currency)
  • “[G]rowth in Security and IoT. Transaction Processing Platforms declined 24 percent (down 26 percent adjusting for currency).”
  • “Cloud revenue up 39 percent (up 36 percent adjusting for currency).
  • “Gross profit margin up 20 basis points.”

IBM’s revenue drops; stock tumbles 7% in after-hours trading


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