Both International Business Machines’ first-quarter total revenue and software revenue slightly missed.
IBM (ticker: IBM) reported revenue of $22.5 billion, down 2% in constant currency, just below consensus of $22.9 billion but a slight improvement from the fourth quarter’s 3% CC decline. Software revenue of $5.66 billion slightly missed consensus of $5.74 billion and grew 2% year-over-year CC, a slight deceleration from the fourth quarter’s 4% growth but not far off from the six-quarter trailing average of 3%. We estimate software organic growth decelerated slightly year-over-year CC to up 1% from our estimate of up 3% in the fourth quarter, but in line with the six-quarter trailing average.
Despite this modest slowing from the fourth quarter’s strong software report, there were several positive takeaways including: a) security overall growing more than 20%; b) double-digit growth in WebSphere [software for service-oriented architecture (SOA) environments]; c) Tivoli [integrated service management (ISM) software] posting high single-digit growth; and d) management guidance for total software and key branded middleware revenue to accelerate through 2014—a positive outlook past the first quarter for software spend in our coverage.
IBM’s security portfolio growth is a good sign for network security vendors Check Point Software Technologies (CHKP), Palo Alto Networks (PANW) and Fortinet (FTNT). Tivoli strength could be positive for storage-software vendor CommVault Systems (CVLT), Symantec’s (SYMC) backup business, and systems management vendors like ServiceNow (NOW) and CA Technologies (CA).
Key branded middleware was stable at 5% CC growth, in line with the fourth quarter’s 6% and a positive for middleware vendors Red Hat (RHT) and Oracle (ORCL). Operating systems’ decline worsened to negative 9% CC from the fourth quarter’s down 2%. IBM reiterated its $1.2 billion SoftLayer investment to expand its data center footprint. These investments in cloud data centers and infrastructure are positive indicators for demand for both OpenStack vendor Red Hat and cloud-management vendor VMware (VMW).
– Michael Turits
– James Wesman
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