IBM reports surprise (small) quarterly revenue rise - largely thanks to its Red Hat acquisition

IBM's tiny 0.1 per cent fourth-quarter revenue increase overshadowed by 3.1 per cent decline for the full year

IBM has reported a surprise rise in revenue of $21.8 billion in the fourth quarter of 2019 - albeit of up just 0.1 per cent - but has posted full-year 2019 revenues down by 3.1 per cent to $77.1 billion.

IBM CEO Ginni Rometty claimed that the company "ended 2019 on a strong note" and added that it had been "led by accelerated cloud performance".

She continued: "This positions us for sustained revenue growth in 2020 as we continue to help our clients shift their mission-critical workloads to the hybrid cloud and scale their efforts to become a cognitive enterprise."

The company acquired Red Hat in a $34 billion deal at the end of October 2018, bundling the Linux and open source software maker into its Hybrid Cloud division. That deal was only closed in July 2019, making the final three months of the year the first full quarter of revenue contributions from Red Hat.

Chief financial officer James Kavanaugh claimed that, excluding divestitures, revenues grew by around three per cent in the fourth quarter, while the company's operating gross margin was pumped up by more than two per cent, "which is the best margin expansion in some time", he added.

During 2019, he continued, the company "modernised" its software portfolio, making it cloud native and optimised for OpenShift, opened "the industry's first" public cloud for financial services and added service offerings for organisations looking to move into the cloud, particularly on Red Hat Linux. Revenue growth in cloud weighed in at 23 per cent, he asserted, with annual revenues now running at $21 billion.

"With 3 per cent revenue growth, we started to see the benefits in our fourth quarter results. Cloud & Cognitive Software revenue was up 9 per cent. We had growth in all three lines of business, reflecting demand across our software portfolio," he said.

However, IBM's Global Technology Services (GTS) division revealed revenues down by four per cent "due to lower client business volumes impacting some of the more traditional labour-based managed services", said Kavanaugh. The kind of software implementation and outsourcing services that used to be Global Technology Services' bread and butter have been eclipsed by cloud computing.

"We are taking actions to accelerate the shift to higher value segments of the market opportunity. We are introducing new managed services offerings for public and private cloud in areas like cybersecurity, data management and hybrid orchestration [and] we are investing in joint services offerings across Global Business Services and GTS," said Kavanaugh.

In addition, both mainframe hardware and IBM's traditional storage businesses enjoyed a strong period, said Kavanaugh. "Our z15 and new high-end storage, which we brought the market, both grew nicely," he said.