IBM revenue continues to fall as it chases cloud leaders

High hopes pinned on Red Hat acquisition to close the gap on rivals

IBM building

IBM has said its acquisition of Red Hat will accelerate growth, despite reporting that current overall revenue has fallen for the fourth straight quarter.

Overall revenue was down 4.2% from the prior year to $19 billion, according to its second-quarter earnings, released on Wednesday. But the tech giant's cloud business is on the up, with a 5% rise on $5.6 billion.

However, while these look positive, the figures still suggest IBM is far behind rival cloud providers AWS and Microsoft. Amazon's cloud computing division leads the market and has continued to grow annually, with a massive 41% jump for the 1st quarter of 2019. While Microsoft's Azure posted revenue growth of 73% in the third quarter of its fiscal year. Both companies will be reporting 2nd quarter earnings in the next few days and are expected to maintain their momentum.

According to IBM's 2nd quarter figures, however, it is on track to achieve full-year expectations, especially if that excludes the recent acquisition of Red Hat - which was finalised last week.

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"In the second quarter, we continued to grow in the high-value areas of the business, led by a strong performance across our Cloud and Cognitive Software segment," said Ginni Rometty, IBM chairman, president and CEO.

"With the completion of our acquisition of Red Hat, we will provide the only true open hybrid multi-cloud platform in the industry, strengthening our leadership position and uniquely helping clients succeed in chapter 2 of their digital reinventions."

IBM ended the second quarter with $46.4 billion of cash on hand, of which approximately $34 billion was used in July to close the acquisition of Red Hat. It does seem that the open-source specialist is a big part of IBM's strategy to close the gap on its rivals, and lends credence to the idea that IBM's fortunes are largely tied up in the success of Red Hat.

"On August 2, we will discuss how the acquisition of Red Hat will accelerate IBM's revenue growth, contribute to our high-value model and enhance our free cash flow generation going forward," said James Kavanaugh, IBM's senior VP and CFO.

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