International Business Machines (IBM) reported earnings July 18th and it wasn't pretty. Plenty has been written about it so I won't go into all the details. In summary, revenue is down 3.3% y/y in constant currency, just missing consensus revenue. Non-GAAP EPS was $2.97 vs. $2.74 consensus, but it was partially driven by lower taxes. Software revenue was down 2% y/y in constant currency vs. consensus expectations of low-single-digit growth, while total service signings declined 14% y/y and backlog was down 4% y/y. More troubling still, its strategic imperatives decelerated to only +7% y/y, the lowest in years (compared to +13% y/y in Q1).
Yes, there are plenty of issues at Big Blue, but what really caught my attention was just how disappointing Cognitive Solutions was. As you may know, Cognitive Solutions is an IBM business that is built around Watson, so weakness in one implies weakness in the others (yes, I know Watson feeds into other areas as well, but that doesn't change the point). Cognitive, which is suppose to be IBM's future, declined 1% y/y in Q2 vs. an already weak +3% y/y in Q1.
