IBM Q2 2016 Earnings Call

IBM CFO Martin Schroeter said the company is still focusing on their strategic imperatives which include growing their security, mobility, analytics, and cloud offerings

“As I said, we continued to deliver double-digit revenue growth in our strategic imperatives. Over the last 12 months, strategic imperatives delivered $31 billion in revenue, and now represent 38% of IBM. Growth was led by cloud, where our revenue was up 30% to $3.4 billion in the quarter, and over $11.5 billion over the last year so good progress in cloud. Looking at revenue from a segment perspective, the strongest growth came from cognitive solutions led by our analytics and cognitive capabilities and security.”

Performance across different geographies varied

“Our revenue is down 2.5%, and on a geographic basis Americas was down 2%. This was an improvement from last quarter’s rate across the U.S., Canada and Latin America. Europe was weaker, due primarily to Germany and Switzerland. And Asia Pacific was down about 2%. And with strong growth in India once again, and sequential improvement in all of the BRIC countries, the BRIC’s returned to growth.”

Their enterprise cybersecurity offering is resonating with customers

“Security had strong revenue growth and together with our Security Services we outpaced the market by 3X. Our momentum is driven by our unique market position. We have built an extensive security portfolio tailored to the needs of our clients for integrated security across their entire operations. As a result, we’re the number one enterprise security software and services provider and hold a leadership position in 12 of the 14 segments according to Forrester, IDC and Gartner.”

Seeing pricing pressure in the more commoditized parts of the IT services industry

“And in some of the traditional service areas that are not as differentiated, we’re seeing price and profit pressure. We continue to invest and shift resources to our higher value services around digital and cognitive.”

IBM CFO Martin Schroeter said he believes the Brexit will have little impact on the business

“I don’t think that Brexit coming at the end of the quarter helped us at all, but we obviously finished kind of right where we expected to finish. And when we look at our full view of the year, we don’t see an impact, if you will, that has any real materiality on us. And that’s why we continue to hold our operating EPS. So it certainly didn’t help but, again, nothing that said we should change our operating EPS for the year.”

They’re trying to help their clients build new markets and products

“So we’re not only doing that with our existing clients and not only doing that in kind of a traditional IT, but in some cases we’re building entirely new businesses, and entirely new markets. And so that, you know, for many is beyond what some of you would focus on in terms of infrastructure, but it’s becoming a bigger and bigger part of what IBM is becoming, and again it’s our view of where value will be created for clients and for our investors.”

SK Additions:

Currency impact will moderate in the second half

“And of course, we’ve talked about the impact of currency on our profit growth in 2016, due primarily to the roll-off of last year’s hedging gains. We can’t predict where currently will go from here, but at current spot rates the impact from currency will moderate in the second half due to year-to-year hedging dynamics and a slightly better translational environment.”