IBM Is Still Not Microsoft (Update)

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Update: Microsoft announced blockbuster earnings, fueled by its cloud business. Its revenue rose 17% to $30.1 billion. Revenue from its “intelligence cloud” unit rose 23% to $9.6 billion. Revenue in its core Azure cloud business rose 89%.

After International Business Machines Corp. (NYSE: IBM) posted a 3.7% rise in revenue for the second quarter, its shares rose modestly. The company’s extremely slow growth shows it is still not in the league with Microsoft Corp. (NASDAQ: MSFT) and other tech giants that have posted strong revenue improvements in areas where IBM management says its future lies.

IBM’s shares are flat for the year, based on a modest rally after it posted its earnings. For the same period, Microsoft shares are up 22% and may go higher when it posts what are expected to be strong numbers for the second quarter. Inc. (NASDAQ: AMZN), which dominates the cloud market in which IBM wants to become a leader, have risen 53% over the period, mostly because of the success of its Amazon Web Services unit.

IBM’s cloud-based revenue growth was actually very slow for the period. In an analysis of the segment that includes cloud efforts, IBM announced:

Technology Services & Cloud Platforms (includes infrastructure services, technical support services and integration software) — revenues of $8.6 billion, up 2 percent (flat year to year adjusting for currency). Strategic imperatives revenue grew 26 percent, led by hybrid cloud services, security and mobile.

The AWS segment of Amazon rose 49% in the first quarter and is expected to post similar results for the second quarter. Revenue for Microsoft’s Azure cloud segment rose 93% in its last reported quarter. It will announce new quarterly results soon, and Azure sales are expected to surge again.

IBM’s problems are often blamed on its legacy businesses: software, technical support, finance and hardware. In reality, its cloud and artificial intelligence businesses have posted improvements that put their growth rates and sizes at the bottom end of the large companies in the industry.

At the top of the press release about IBM’s results, Ginni Rometty, chair, president and chief executive officer, said:

We delivered strong revenue and profit growth in the quarter, underscoring IBM’s progress and momentum in the emerging, high-value segments of the IT industry. More clients are engaging IBM on their journey to the cloud, and deploying IBM Cloud, Watson AI, analytics, blockchain and security solutions. This demonstrates IBM’s unique leadership in providing innovative technology coupled with deep industry expertise, trust and security.

“Strong growth” and “unique leadership”? Not really.

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