While there was much joy in the media over IBM’s Q2 results last night, it behoves us to pull apart the numbers, because I can’t see that there’s that much cause for celebration about IBM’s services business.
In fact, services growth slowed in Q2 to 2% (all rates yoy at constant currency) compared to 3% for the prior quarter. This trend was pretty much reflected across the entire breadth of IBM’s services portfolio, with Outsourcing revenue growth down from 4% to 3%, and Transaction revenue growth down from 3% to 1%. Consulting & SI revenues were flat vs 2% growth in Q1. The star of the show, if you want to call it that, was Application Outsourcing (i.e. ‘cost-out’ services), up 4%.
Then top this off with constant comments on the concall from CFO Mark Loughridge along the lines of “it wos emerging markets wot did it”, and you begin to wonder what was really happening in the rump of IBM’s services business. The only real clue that Loughbridge gave was to say that Global Business Services (GBS) revenues in major markets were down 1% “due to declines in Japan”. Hmmm – just Japan?
Even services profitability was a good news/bad news story. True enough, services pre-tax margins jumped 150bps compared to the prior quarter, to 14.4%. But this masked a 120bps decline in Global Technology Services (GTS) margins to 13.4% on a yoy basis due to “workforce rebalancing” (more layoffs, we assume). GBS margins were up a tad yoy, to 14.8%, but they only generate about one-third of IBM’s services profit.
At least services signings were up again after the disastrous 18% decline last quarter (see IBM services signings crash). And we should take good cheer from the news that IBM is on track to double cloud revenues this year – whatever that may mean.
Well, I’m off to take my misery pill and I will leave it to my colleague Angela Eager to tell you more about IBM’s software business in a subsequent post.