Turning the juggernaut

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29 July 2016 | 0

Paul HearnsTransformation is never easy.

The very nature of the process is taking one thing and turning it into another. Anyone who has read Ovid’s Metamorphoses will know this can be best with problems, but Roman mythology aside, it isn’t much easier in business.

Transformation is especially difficult when the process must be carried out on a behemoth. Despite many changes, divestitures and other developments in recent years, IBM still qualifies as such.

“In the last 12 months, the strategic imperatives delivered close to $31 billion in revenue, and now account for 38% of revenue,” Martin Schroeter, IBM

One of the first difficult things about transformation is to acknowledge that it is required. A few years ago, after some deep navel gazing, Big Blue identified a number of what were termed strategic imperatives, on which it would focus to transition itself into the new world of IT. These included the likes of cloud computing, analytics, artificial intelligence and security. But also in that mix was design.

Last week, IBM released its latest quarterly results which despite showing a continued overall decline in revenue, also saw those from the strategic imperatives, cloud, analytics and security, increased by 12% year-on-year to $8.3 billion (€7.5 billion).

Cloud revenue (public, private and hybrid) grew a healthy 30% in the second quarter, while revenue from analytics grew 4%, revenue from mobile increased 43% and the security business grew 18%. According to the figures, in the last 12 months, the strategic imperatives delivered close to $31 billion (€28 billion) in revenue, and now account for 38% of the company’s revenue, said Martin Schroeter, IBM senior vice president and chief financial officer.

The company’s overall revenue in the reported quarter fell by 3% to more than $20 billion (€18 billion). Its profit in the quarter, was calculated at $2.5 billion (€2.3 billion), down 29% year-on-year.

Now that might look a tad gloomy, but consider the scale of transformation that the company has undergone in the last 10-15 years, and the turnaround is remarkable. Selling less and less in terms of hardware, the company now has fast growing services, software and support businesses that will see it compete at the top table among the relative upstarts in cloud, analytics, security and more. The juggernaut has indeed been turned.

It is a similar story over in Redmond, where Microsoft’s latest quarterlies show that its Azure business revenue has doubled over the same period last year. Indeed, there have even been reports of Azure taking the public cloud crown from AWS in the near future.

Overall revenue for the quarter was down, but total revenue for the three months ended June 30 was $20.6 billion (€18.74 billion), down from $22.2 billion (€20.2 billion) last year.

Microsoft’s Intelligent Cloud business, which includes Azure services and on-premises server software, performed better, with revenue up 7% to $6.7 billion (€6.1 billion). Azure compute usage more than doubled year over year. Redmond does not break out a dollar figure for its Azure sales, making it difficult to know the scale of the business.

Search revenue also grew, in double digits, at some 16%. More than 40% of search revenue in June was driven by Windows 10 devices, according to Microsoft.

The productivity software business also grew significantly, with the number of commercial seats for Office 365 growing 45% year-over-year, as more companies migrated to the subscription-based suite.

This has been seen as a validation of the direction being taken by CEO Nadella, with a firm focus on cloud. But again, the growing revenues from the new business focuses are still not enough to offset the declines elsewhere.

It is like watching an oil tanker turn 1800 — coming out of the slow turn, it takes it a while to build up speed again. But the turn is made, the new direction established, and it would appear with both Redmond and Big Blue, the hard work is done.

While neither company could be said to have been agile in their changes — Microsoft’s nose, and indeed hands, still bloody from the Nokia acquisition — it would appear that both are now better equipped to face the new world of IT.

 

 

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