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Earnings

IBM earnings: Still searching for growth

After a rare quarter of revenue growth in the fourth quarter of 2019, IBM revenue fell 3.4%, which has been a steady pattern for Big Blue over the last few years.

IBM logo

IBM's first-quarter earnings are in, and amid the COVID-19 pandemic, they aren't looking rosy.

  • Q1 revenue: $17.6 billion (-3.4% YoY, -19% QoQ, vs. $17.6 billion expected)
  • Q1 earnings: $1.2 billion (-26% YoY, -68% QoQ)
  • Q2 guidance: Like many companies, IBM is no longer providing guidance for the rest of the year due to the impact of COVID-19.

The big number: After a rare quarter of revenue growth in the fourth quarter of 2019, IBM revenue fell 3.4%, which has been a steady pattern for Big Blue over the last few years. Arvind Krishna, IBM's new CEO, told analysts that "you should look at [revenue] growth as the number one most important metric" when evaluating IBM's performance over the next few years, as it attempts to recover from the COVID-19 pandemic.

People are talking: "As you would expect, we saw a noticeable change in client priorities. With that, there was effectively a pause, as clients understandably dealt with their most pressing needs," James Kavanaugh, IBM's chief financial officer, said on the earnings call, describing what the company saw during March.

Opportunities: Red Hat is likely to be an important catalyst for IBM revenue over the next year or so: The subsidiary signed the two biggest deals in its history during the first quarter, Kavanaugh said. Red Hat is well-positioned to help IBM's customers — most of whom are still operating very old-fashioned tech infrastructure — modernize their portfolios.

The other metric Krishna urged analysts to follow was the growth of IBM's hybrid cloud business, which helps companies run software both on public clouds and their own servers. Red Hat's software and services are a key part of IBM's hybrid cloud strategy, and progress here will show how quickly IBM customers are actually updating their infrastructure.

Threats: IBM revenue has been on a steady decline for years, thanks to its legacy software base and inability to cash in on cloud computing — and a global pandemic is not going to help. And while it's not that surprising that IBM reported a drop in customer activity during March, all of its competitors have yet to report their numbers this quarter — they may not have seen as strong a plunge.

Also, IBM currently only has $12 billion in cash and $64.3 billion in debt, although it is still generating cash. "Liquidity is essential," Krishna said. "Without that, nobody is going to survive through this next period."

The power struggle: Like many enterprise technology companies, a significant chunk (60%) of IBM's revenue comes from recurring contracts that were signed months or years ago. But Kavanaugh said that some of its more transactional businesses, such as software, saw customer activity fall off a cliff in March, as corporate customers are putting purchases on hold.

Enterprise software and services tend to have long sales cycles, and people being people, a lot of deals tend to close in the last few weeks of a quarter. So the timing of the outbreak really couldn't have been worse, but if deals that were delayed in the middle of the storm eventually get hammered out in the second or third quarters of the year, the long-term impact on IBM's business might not be as pronounced.

Microsoft wants to replace artists with AI

Better Zoom calls, simpler email attachments, smart iPhone cases and other patents from Big Tech.

Turning your stories into images.

Image: USPTO/Microsoft

Hello and welcome to 2021! The Big Tech patent roundup is back, after a short vacation and … all the things … that happened between the start of the year and now. It seems the tradition of tech companies filing weird and wonderful patents has carried into the new year; there are some real gems from the last few weeks. Microsoft is trying to outsource all creative endeavors to AI; Apple wants to make seat belts less annoying; and Amazon wants to cut down on some of the recyclable waste that its own success has inevitably created.

And remember: The big tech companies file all kinds of crazy patents for things, and though most never amount to anything, some end up defining the future.

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Mike Murphy

Mike Murphy ( @mcwm) is the director of special projects at Protocol, focusing on the industries being rapidly upended by technology and the companies disrupting incumbents. Previously, Mike was the technology editor at Quartz, where he frequently wrote on robotics, artificial intelligence, and consumer electronics.

People

Tom Siebel takes a victory lap after C3.ai’s blockbuster debut on Wall Street

C3.ai raised $651 million in its first day of trading on the New York Stock Exchange.

C3.ai shares closed at $92.49 on Wednesday.

Photo: NYSE

Tom Siebel strikes again.

Shares of C3.ai, the company he founded in 2009, just went gangbusters on the company's first day of trading on the New York Stock Exchange. Living up to its ticker "AI," the firm offers catered solutions that help clients like Shell and the U.S. Air Force, among others, predict when their machines may need maintenance.

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Joe Williams

Joe Williams is a senior reporter at Protocol covering enterprise software, including industry giants like Salesforce, Microsoft, IBM and Oracle. He previously covered emerging technology for Business Insider. Joe can be reached at JWilliams@Protocol.com. To share information confidentially, he can also be contacted on a non-work device via Signal (+1-309-265-6120) or JPW53189@protonmail.com.

Power

Sonos CEO Patrick Spence: There’s money in ad sales for us

The smart speaker maker adds in-house ad sales as radio service continues to grow.

"Given the kind of customer base that we have and given the adoption we've seen in Sonos Radio, there's absolutely advertising revenue there," Patrick Spence says.

Photo: Andrej Sokolow/Picture Alliance via Getty Images

Sonos is doubling down on its efforts to monetize services on its platform, and is now looking to build out an in-house ad sales team for its free Sonos Radio service. Sonos CEO Patrick Spence confirmed the news in a conversation with Protocol on Wednesday, saying that in-house ad sales could help the company attract the right kind of brand advertisers to its platform. "Given the kind of customer base that we have and given the adoption we've seen in Sonos Radio, there's absolutely advertising revenue there," he said.

Spence made these remarks ahead of the release of the company's fiscal Q4 2020 earnings results. The company grew its revenue 16% year-over-year, to the tune of $339.8 million for the quarter. Earnings per share came in at $0.15, ahead of the $0.02 that analysts had expected. The company added 1.8 million new households to its customer base in its fiscal 2020, and close to 11 million households now own Sonos products, with an average of 2.9 Sonos products in each of those households.

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Janko Roettgers

Janko Roettgers (@jank0) is a senior reporter at Protocol, reporting on the shifting power dynamics between tech, media, and entertainment, including the impact of new technologies. Previously, Janko was Variety's first-ever technology writer in San Francisco, where he covered big tech and emerging technologies. He has reported for Gigaom, Frankfurter Rundschau, Berliner Zeitung, and ORF, among others. He has written three books on consumer cord-cutting and online music and co-edited an anthology on internet subcultures. He lives with his family in Oakland.

Power

Investors didn’t like Ubisoft and Activision’s earnings

Both stocks plunged on the companies' forecasts.

The outlook is good for console manufacturers, but not so much on the software side.

Image: Protocol

Big Tech companies weren't the only ones reporting earnings this week; some of the biggest players in the gaming industry were, too. And there was a sharp divide: While the outlook's good for console manufacturers, things are less peachy on the software side.

Sony and Microsoft both reported earlier in the week, and both companies' gaming divisions had pretty good quarters. While PS4 sales dropped, unsurprisingly, software and subscription revenue soared. And an optimistic outlook for the PS5 — Sony's hoping to sell 7.6 million by the end of March — and the subscription and software sales that should entail, led Sony to raise its full-year operating income forecast by 13%.

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Shakeel Hashim

Shakeel Hashim ( @shakeelhashim) is a growth manager at Protocol, based in London. He was previously an analyst at Finimize covering business and economics, and a digital journalist at News UK. His writing has appeared in The Economist and its book, Uncommon Knowledge.

Power

Despite an early-week scare, cloud earnings finish strong

SAP's disappointing results had investors worried that a weak economy had finally caught up with the titans of enterprise tech, but AWS, Microsoft and Google are still going strong.

All three major vendors reported strong revenue growth this week.

Image: Protocol and Gonza

At a moment of great uncertainty for the world economy, with a new wave of the pandemic looming and one of the most consequential U.S. elections in decades around the corner, it's still a pretty good time to be in the cloud computing business.

AWS, Microsoft and Google all continued to benefit from the generational shift away from self-managed data centers to at least some degree of cloud computing during the third quarter of 2020. All three major vendors reported strong revenue growth this week but appear to be very closely watching an unsteady economy that could be forced into lockdown once again this winter.

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Tom Krazit

Tom Krazit ( @tomkrazit) is a senior reporter at Protocol, covering cloud computing and enterprise technology out of the Pacific Northwest. He has written and edited stories about the technology industry for almost two decades for publications such as IDG, CNET, paidContent, and GeekWire. He served as executive editor of Gigaom and Structure, and most recently produced a leading cloud computing newsletter called Mostly Cloudy.

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