IBM’s stock has been a laggard, which is down nearly 9% this year and remains a concern for investors. On the flip side, Microsoft (MSFT) is up 26% and Amazon (AMZN) up 50% for 2018. The Big Blue stock’s performance is going to hinge on the sustainable revenue growth and flawless execution of its transition to high-performing segments delivering consistent performance.
IBM has been playing catch up with its nimble rivals like Amazon, Microsoft and Google in embracing technologies like cloud computing, analytics, mobile services, and cybersecurity. Under Rometty’s leadership, the company formed “Strategic Imperatives” to focus on high-growth domains like cloud computing, social, mobile, analytics and security.
Forming of Strategic Imperatives (SI) was inevitable for the company as it needs to reduce the dependency on low-margin legacy businesses that were witnessing slow growth resulting in sales declines in 2012. IBM’s decision to invest in the “Strategic Imperatives” segment seems to be bearing fruit over the years. Last quarter, out of the $20 billion total revenues, more than 50% contribution came from the SI businesses, which saw a stellar growth of 26% year-over-year.
Investors would be keeping a close tab on the SI business performance in the third quarter. The company needs to make sure it’s able to continue the strong growth trend. It also needs to continue its investments on the emerging technologies so that it’s not missing the bus compared to its rivals.
Related: IBM Q2 2018 Earnings Transcript
Till now the turnaround story of the Big Blue under the helm of Rometty has been good. But they need to make sure the company is able to generate solid top and bottom line growth consistently for a long period to bring back the mojo on the stock.
In-line outlook, cloud revenue push IBM shares up after Q2 results