Summary:

Despite gains in cloud computing revenue, IBM did not meet Wall Street’s expectations of the legacy technology vendor. Flash storage could help bring more revenue later this year.

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IBM reported $23.4 billion in revenue in the first quarter of the year, down more than 5 percent year over year, and $3.03 billion in net income, down 1.1 percent. Analysts had been expecting more than $24 billion in revenue.

The company said cloud-computing revenue was up more than 70 percent year over year in the first quarter of 2013, following an 80 percent revenue gain in the previous quarter.

Revenue from software-as-a-Service (SaaS) products, including Tivoli software, were up 65 percent, Mark Loughridge, senior vice president and chief financial officer for finance and enterprise transformation, said during a Thursday call with investors. Revenue coming from enterprises setting up their own private cloud with IBM Infrastructure-as-a-Service (IaaS) offerings was up “more than 75 percent,” Loughridge told investors. As was the case last quarter, Loughridge didn’t break out exact revenue for the products, so we have no real idea where IBM’s cloud business stands.

Revenue decreases came in several categories, including hardware. Power Systems server sales dropped more than 30 percent year over year.

How will IBM shore up revenue going forward? Increasing revenue in growth markets will be an area of focus, Loughridge said, although he also pointed to flash memory products as a way to get more growth from storage products later this year. Just last week IBM said it would commit $1 billion to flash, adding it to more hardware and opening 12 facilities around the world to prove to customers the power of flash.

Last week it seemed like a nice idea. Now it looks like a more important strategic move.

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