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IBM Smashes Analyst Estimates, But Can it Catch Cloud Rivals Amazon & Google?

Last Updated March 4, 2021 2:53 PM
Tedra DeSue
Last Updated March 4, 2021 2:53 PM

By CCN.com: Remember when IBM was the technology trailblazer? It seemed every innovation out of Big Blue took off, leaving any other company that dared to compete in the dust.

Well, the tables have turned. No longer is IBM the standout in the technology space, and one of the reasons relates to the strides being made in cloud services. Amazon, Google, and Microsoft have found their grooves in this cutting-edge space, and IBM is in catchup mode.

ibm stock price
IBM shares soared after the company announced much-better-than-expected quarterly earnings.

However, it’s not going down without a fight. When it reported earnings this week, it also touched on the strides it is making with its cloud services offerings.

Determined to not be a laggard, but instead be a leader, IBM’s CEO Ginni Rometty IBM talked about the company’s advances during the World Economic Forum in Davos, Switzerland. Her words indicated Big Blue’s goal was to become the biggest player in a new cloud computing market. She pegged its market at $1 trillion.

Big Blue Posts Some of its Best Earnings in Years

IBM, which is affectionately known as Big Blue, had a pretty good fourth quarter in 2018 . It managed to beat analysts’ estimates on the top and bottom lines.

For the quarter, IBM pulled in $21.76 billion in revenue. While impressive, that figure is lower than what was reported for Q4 2017. Back then, IBM reported $22.54 billion in revenue.

IBM’s cloud service offerings fall into its strategic imperatives group, which reaped almost $40 billion in revenue in 2018. Cloud revenue contributed about $19 billion of that, which was 12 percent higher than it was in 2017.

IBM’s report of strong profit margins in its technology services particularly relates to its hybrid cloud offerings.

Traditionally known for its hardware products like computers, IBM has been falling behind in the tech space for years. It had struggled to remain competitive, which lead to revenue declines.

Its epiphany moment finally came, and Big Blue shifted its focus to faster-growing segments, such as cloud services and blockchain. IBM increased spending on cloud-related hardware and software and services to its clients. Its goal has been to implement cloud solutions across public, private, and multi-cloud environments.

Keeping up with the Joneses, AKA Google and Amazon

IBM’s biggest competitors are Amazon and Microsoft. Thanks to its cloud service offerings, Amazon is now the world’s most valuable company. Microsoft is second in terms of market cap.

Amazon is also the leader in cloud services. Amazon was one of the first tech giants to roll out cloud services. Its Amazon Web Services (AWS) has the most cloud market share.

It’s followed by Microsoft. Microsoft’s Azure cloud product saw growth of roughly 98 percent in 2017. Alibaba is also carving out considerable market share in cloud services.

ibm cloud market microsoft amazon google

Don’t Doubt Big Blue

Instead of reinventing the wheel, IBM chose to boost its presence in the cloud services space through acquisitions. It’s buying software-as-a-service (SaaS) company Red Hat for a whopping $33 billion. This would be the largest buy ever for IBM. It’s expected to close this year.

The idea is that Red Hat will help IBM increase sales for its hybrid services. These services allow companies to run programs that use computing resources from their own servers and web services from IBM and others at the same time, according to The Wall Street Journal.

Rometty said in a statement:

In 2018 we returned to full-year revenue growth, reflecting growing demand for our services and leadership solutions in hybrid cloud, AI, analytics and security. Major clients worldwide, such as BNP Paribas, are turning to the IBM Cloud and our unmatched industry expertise to transform their businesses and drive innovation.

Speaking with Fox Business’ Maria Bartiromo, Rometty concluded:

“That’s a $1 trillion market, ‘Chapter 2.’ We will be number one in what the world calls hybrid cloud. That is ‘Chapter 2’ and we’ll be number one.”

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