IBM (International Business Machines) Corporation is scheduled to release third-quarter 2020 results on Oct 19.
IBM this month announced a major restructuring aimed at focusing on what the company sees as a $1 trillion growth opportunity in hybrid cloud computing.1 The move comes as the company aims to capitalize on rising demand for cloud computing services as the work-from-home economy expands amid the COVID-19 pandemic.
IBM’s third-quarter performance is likely to reflect gains from solid adoption of its hybrid cloud computing capabilities, mobile, analytics, cognitive technologies, and AI-related solutions.
Investors also will focus on another key metric in the Q3 results: IBM’s cloud revenue. Growth in the company’s cloud revenue is outpacing other parts of its business. There are no consensus estimates for IBM’s cloud sales for Q3, but its growth has accelerated dramatically in recent quarters, rising by 31.3% in Q2 2020 even as overall revenue declined.
One of the only bright spots for IBM recently has been growing in its cloud computing revenue. Cloud computing refers to the delivery of various computing services via the Internet. It allows companies to gain on-demand access to computer resources like data storage, servers, software applications, and more without having to purchase and set up the necessary computing infrastructure on their own premises. This can reduce costs while increasing productivity and efficiency.
Synergies from the Red Hat acquisition, particularly, are likely to have contributed to the cloud segment’s revenues. Markedly, revenues from Red Hat in the second quarter improved 18% (at constant currency) on a normalized basis. Currently, more than 2,400 clients are utilizing Red Hat and IBM’s hybrid cloud platform, and around 600 IBM Services clients are leveraging Red Hat technology.
Also, incremental adoption of IBM Blockchain-powered World Wire, Farmer Connect, and Food Trust platforms may get reflected in third-quarter revenues. In addition, the company’s growth in industry verticals like health and security is likely to have driven third-quarter performance.
Nevertheless, increasing expenses on enhancing cloud platform amid stiff competition from Microsoft MSFT Azure and Amazon’s AMZN Amazon Web Services might have weighed on IBM’s profitability in the quarter to be reported.
Moreover, the coronavirus induced crisis may have hindered business prospects in the third quarter, owing to restricted economic activity globally. Notably, the adoption of cognitive applications and transaction processing platforms in May was affected by coronavirus impacts in the second quarter, despite a recovery in June. This makes us skeptical regarding its performance in the third quarter.
During the third quarter, IBM acquired Brazil-based robotic process automation (RPA) software provider, WDG Soluções Em Sistemas E Automação De Processos LTDA, or “WDG Automation”. The aim is to strengthen end-to-end AI-infused automation capabilities to aid enterprises to accelerate business processes to IT operations. Financial terms have been kept under wraps.
The company also unveiled its latest chip processor — IBM POWER 10 — which will be manufactured by Samsung Electronics. The chip is primarily meant for use across data center operations and will be based on Samsung’s 7-nanometer (nm) process technology.
Markedly, IBM POWER 10 boasts of three times enhanced performance than its predecessor, IBM POWER 9. This will help data centers achieve greater operational efficiency.
The company also expanded a partnership with Workday WDAY in a bid to introduce a joint return-to-workplace-focused solution to help enterprises reopen safely. The integrated solution combines IBM’s Watson Works, and Workday’s Adaptive Planning and HCM solutions.
IBM also inked a multi-year deal with Coca-Cola European Partners (“CCEP”) to help the latter move to an open hybrid cloud environment. IBM will deploy its Red Hat OpenShift and Red Hat Enterprise Linux solutions to assist CCEP in achieving operational efficiency by reducing expenses and streamlining its IT infrastructure.
The gains from the latest acquisitions, product rollouts, partnerships, and deal wins are expected to have driven the third-quarter top line.
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