IBM's Surging Cloud Revenues Offset Legacy Losses

IBM's steady growth across several strategic businesses, especially its portfolio of cloud-based products and services, balanced out declines in the Armonk, New York-based computing giant's legacy markets.

CFO Martin Schroeter told investors on Monday's earnings call that IBM clients are looking for cognitive capabilities, delivered as services in the cloud. Those technologies, coupled with deep industry expertise, are the formula to enabling those clients to become cognitive businesses, Schroeter told investors.

IBM is "building the industry's broadest and deepest cognitive solutions and cloud platform portfolio," Schroeter said.

[Related: IBM Beats Expectations For Q2 As Revenue And Profit Continue Decline]

Big Blue delivered $3.29 earnings per share on $19.2 billion in revenue, beating analyst expectations of $3.24 on $19 billion in revenue. IBM shares, closing on Monday at $154.77, fell after-hours to roughly $150.

"What you see in our third-quarter results is stability in our revenue," Schroeter said, along with continued growth in the company's strategic imperatives—cloud, analytics, mobility and security.

The cloud business was the standout in a quarter, ending in September.

While its total revenue was flat when compared to its year-ago quarter, IBM's strategic imperatives saw sales increase by 16 percent, with the cloud component expanding by 44 percent.

Those growth sectors are already delivering 40 percent of IBM's overall revenue. They're high-margin businesses that generate healthy profits, Schroeter said.

IBM is "running a highly differentiated play," Schroeter told investors. The company is busy "addressing new opportunity areas and building new markets."

That strategy involves investing in the development of organic capabilities, such as the build-out of the Watson cognitive computing platform.

At the same time, IBM is aggressively purchasing key capabilities, Schroeter said, like last month's acquisition of Promontory Financial Group, a consulting firm that laid the groundwork for Watson Financial Services—cognitive solutions in risk and compliance.

IBM's has spent $5.5 billion on acquisitions so far this year, he said.

IBM is also aggressively pushing development of its Blockchain platform to enable more-trusted transactions in the financial services industry.

The run rate for products sold by subscription through the cloud was adjusted to $7.5 billion after Q3, demonstrating that IBM is building those "as-a-service" businesses at scale, he said.

IBM poured fuel on its cloud businesses in the last quarter with a Workday partnership that makes IBM the business software vendor's primary cloud platform for development and testing, as well as an expansion of its alliance with VMware.

The company's hybrid cloud strategy continues to resonate with clients, Schroeter said.