IBM Revenue Straggle as Cloud Pivot Remains a Challenge

IBM Revenue Straggle as Cloud Pivot Remains a Challenge

IBM -0.32% International Business Machines Corp. said revenue fell for its fourth straight quarter as it struggles to retool its business for the modern computing age, although Big Blue’s profit grew more than Wall Avenue had projected.

Revenue fell 4.2% from a year earlier to $19.16 billion. Profit rose 3.9% to $2.5 billion, as the company worked to scale back its exposure to businesses with smaller profit margins.

IBM has trailed Microsoft corp. And customers race to do more of their computing in the cloud—online services that free companies from the need to buy and keep their systems. As competitors report consistently strong revenue growth, buoyed by sales of their cloud services, IBM has absorbed a string of declines.

While IBM, led by Chief Government Ginni Rometty, says its cloud business is rising—cloud revenue climbed by 5% in the second quarter—it is far behind the 41% annual cloud revenue growth Microsoft saw in its latest quarter.

Meanwhile, other components of IBM’s business are in a gradual decline. Revenue in the company’s IT services division fell by 6.7% year-over-year in the second quarter as the company lost sales from lower-margin equipment it is transitioning away.

The division that homes IBM’s mainframe business also fell almost 20%, although it faced a troublesome comparison to last year when the release of a new generation of those computers buoyed sales.

Ms. Rometty is now betting on IBM’s $34 billion acquisition of open-source software big Red Hat Inc. to seed a revenue rebound after earlier cloud deals like the $2 billion acquisition of Dallas-based Soft Layer failed to vault the company over the competition. The Purple Hat deal, the biggest in IBM’s history, closed earlier this month.

IBM expects to update financial projections in connection with the Purple Hat deal Aug. 2; the acquired company’s performance wasn’t factored into IBM’s second-quarter numbers.

While second-quarter revenue was in line with analysts’ expectations, earnings on an adjusted basis of $3.17 a share beat expectation from analysts polled by Fact Set.

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