IBM (IBM) has been an interesting stock to follow since the Red Hat acquisition. No doubt Red Hat is a superb company, which was able to create massive value from leadership in a free, open license technology like Linux. Indeed, we were rather confident that modest but unequivocal growth could be squeezed out of cost synergies, and more unusually, revenue synergies from the marriage of these companies. However, our tone is changing on this release. Although there was resilience, we saw that cloud margin was declining. We don’t think this is entirely consistent with the narrative that Hybrid Cloud is finding value among customers since it might indicate erosion in pricing.

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