Not Quite on Cloud 9: IBM sees its traditional sales outputs fall

July 31, 2020

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2 min read

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What's going on here?

IBM, the US tech supplier, has seen its profits drop by 5.4% as companies shift from traditional IT systems to cloud software because of the coronavirus.

What does this mean?

International Business Machines Corp, better known as IBM or “Big Blue” has seen its sales fall to $18.1bn.  The company traditionally produced computer hardware and software but in recent years these have been in decline. This has accelerated due to coronavirus as IBM’s customers move towards cheaper cloud platforms and away from buying expensive hardware.  Cloud computing delivers IT services; servers, storage and software without the need to invest in IT infrastructure. IBM has always been at the forefront of IT hardware, being the inventor of the ATM, floppy disk, hard drive and barcode to name a few. Unfortunately, the company has been less successful in recent years seeing profits shrink. 

What's the big picture effect?

It’s not all doom and gloom for Big Blue, as it in fact exceeded market expectations this quarter. Analysts on Wall Street had been predicting that the company would rake in revenue of just $17.7bn.  IBM had previously struggled to keep up with competitors such as Microsoft, Google and Amazon in cloud technology. This changed when IBM acquired Red Hat, a cloud platform, for $34bn in 2019 (read our article about that here).  As a result, IBM has managed to mitigate losses through the expansion of its cloud business, where revenue increased by 30% in the past 3 months to $6.3bn. Nonetheless, this failed to ease operating losses made by IBM’s consulting, transaction and development arms.

The cloud has given IBM a much-needed boost in the midst of this pandemic. IBM has existed since 1911 and has shifted its operations over the decades to adapt to the most profitable markets. IBM, therefore, has a very varied business portfolio ranging from computing to consulting (in fact there are so many IBM products they have a special Wikipedia page).  With non-cloud divisions falling by 8% in revenue the diverse portfolio IBM holds is becoming disadvantageous. In the current climate should IBM make the shift away from its traditional roots to cloud 9?

Report written by Michael Johnson

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