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July 19, 2018updated 21 Jun 2022 4:21am

Mainframes the Unlikely Star of IBM’s Q2 Earnings

Security, cloud surge; revenues beat expectations

By CBR Staff Writer

Mainframes: they may not be fashionable, but they are still big business for IBM and were the fastest growing business line for the company as it reported its Q2 results late Wednesday, while more cutting edge solutions declined.

Overall company revenue gained two percent, adjusted for FX volatility, to $20 billion (£15.2 billion) in the second quarter, IBM said in a statement, marginally outperforming analyst expectations of $19.9 billion.

Mainframes Up; Cloud Also Booming

Its cloud segment grew 18 percent to $4.7 billion, driven by impressive cloud-as-a-service growth of 24 percent. IBM’s “Cognitive Solutions” segment meanwhile, which includes solutions software and transaction processing software, returned revenues of $4.6 billion, down one percent when factoring in FX adjustments.

It was systems hardware that really stood out though: the company’s IBM Z line of mainframes was up 100 percent year-on-year, “reflecting high adoption rate of [the] z14 and strong demand for new workloads”, IBM revealed in a slideshow.

(The new IBM z14 single frame model mainframes can process 850 million encrypted transactions per day in the space of two floor tiles, and are a popular choice for data centres; it can deliver 100 percent encryption of application, cloud service and database data and allow open source machine learning to run on it.)

IBM mainframes

While strong performance across any segment is no doubt welcomed, the news may be a mixed blessing for IBM, which has faced several consecutive years of declining revenue and concern among some analysts that it remains too wedded to what are seen as “legacy” product lines. (With performance this strong and the hardware that good, what constitutes “legacy” is up for debate…)

IBM shares had fallen sharply in April following the previous earnings report, dropping 7.5 percent in one day even though results exceeded Wall Street expectations and were down 10.6 percent since IBM’s last earnings report prior to the Q2 results, compared with a 7.9 percent gain on the tech-heavy Nasdaq Composite Index.

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Strongest Growth in EMEA

EMEA was the fastest growing geographical region for the company, which saw across the board growth of four percent, against one percent for the US.

Another stand-out result was security revenue, which runs across business segments, and which surged 79 percent from a year ago to $1 billion, IBM said.

“We delivered strong revenue and profit growth in the quarter, underscoring IBM’s progress and momentum in the emerging, high-value segments of the IT industry,” said Ginni Rometty, IBM chairman, president and chief executive officer.

IBM cloud
She added: “More clients are engaging IBM on their journey to the cloud, and deploying IBM Cloud, Watson AI, analytics, blockchain and security solutions. This demonstrates IBM’s unique leadership in providing innovative technology coupled with deep industry expertise, trust and security.”

IBM ended the second quarter with $11.9 billion of cash on hand. Debt totaled $45.5 billion, including Global Financing debt of $31.1 billion. Operating pre-tax profit was up 11 percent for the quarter, versus Q2 2017. IBM said: “The balance sheet remains strong and is well positioned for the long term.”

See also: Meet the Millennial Mainframe Magician

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