IBM repo
rted a pretty impressive 8% revenue and 10% earnings growth in Q1 (to 31st March) - largely as a result of their booming server business. See Good day for tech. But growth in IBM’s services business lagged the rest of the company in Q1 with revenues up 3% yoy (at constant exchange rates – CER) to $14.6b, compared with 5% (to $24.6b) for the whole shooting match. Services revenues were down 2% (as reported) compared to the prior quarter.
But you’d have to peer deep into the ‘supplemental materials’ to see that services bookings dropped off a cliff. Outsourcing signings plummeted 30% yoy (CER) yoy to $4.7b, and transactional signings by 5% to $5.8b, leaving total signings down 18%. Nonetheless, IBM’s services backlog at the end of Q1 was about 1-2% higher at $142b – almost 10x revenues! After dancing around a lot on why customers weren’t signing orders, CFO Mark Loughridge eventually pointed the finger at the public sector. Well, may be. But public sector only represents about 15% of IBM’s total business, so there must have been a heck of an ‘accident’ to pull all services signings down by quite so much.
Anyway, there was better news on services pre-tax margins, which jumped nearly 3 points yoy to 12.9%.
A couple of other statements from Loughbridge are worthy of note.
First, while EMEA revenues only grew by 2% yoy (CER), to $7.8b, he alluded to ‘double-digit’ growth in France, rather implying that the rest of Europe (including UK, of course) went backwards.
Loughbridge also made great play of ‘five times growth in Cloud revenues’ (yoy) with a plan to double this year and reach $7b in 2015 “of which $3b will be incremental”. So what do you read into this? A massive slowdown in cloud growth in 2011, for one thing. But of course it all depends in what Loughridge means by ‘cloud’ – does it include hardware sales too? Anyway, about the only useful number we can see here is that IBM hopes to add net $3b to the top line over the next 5 years due to ‘cloud’, which actually doesn’t sound that much relatively speaking.