In the first quarter, strategic imperatives revenue grew 12 percent to $7.8 billion, not adjusted for currency, while cloud revenue grew 33 percent to $3.5 billion. Net income was $2.3 billion.
Still, business is likely to pick up in the second half of this year, as the company wraps up last year's acquisitions, releases new products, closes on large contracts, and moves toward business with better profit margins, executives said on a conference call.
"From my perspective, the quarter played out pretty much how I expected, other than we thought we had a couple more signings relationships in Services that we could have gotten done," Schroeter said in the conference call. "You have to ramp investment ahead of the revenue in order to get that system ready, and that's the period we're in now, and we'll be in through the first half....we also have a lot of opportunities to realize efficiencies in how we run."
IBM's cognitive computing technology, Watson, continued to gain ground over the quarter, with new features for marketing. The company also implemented machine learning into pharmaceutical research, and its property, The Weather Company, announced a new collaboration with Samsung and Lyft.
"The legacy core is a business that we're constantly reinventing," Schroeter said in the conference call.
During the quarter, "cognitive solutions" revenue grew more than 2 percent to $4.1 billion, not adjusted for currency, slightly above the $4 billion predicted by StreetAccount. Revenue from business services and consulting fell slightly, in line with StreetAccount estimates, while sales from items like infrastructure, hardware and operating systems fell slightly short of expectations.
Big Blue has also shifted its hiring focus, amid pressure from the new U.S. presidential administration to hire more Americans. Under Rometty, IBM has pledged to hire about 25,000 U.S. workers in the next four years, including 6,000 in 2017. Many of those are expected to be "new collar" jobs, or jobs that focus on qualifications like apprenticeships rather than traditional higher education.
At least one big investor has pledged his loyalty to the brand: Berkshire Hathaway's Warren Buffett, who has praised IBM's dividends. Berkshire paid an average price of $170.43 per share of Big Blue, as of January. IBM briefly traded above $171 on Tuesday during the regular session, but fell below $164 a share after hours.
IBM said it returned $2.6 billion to shareholders through dividends and share repurchases in the first quarter.
"Now the timing is right, is to get the returns for our investments. If you were to poll 100 IBM executives, it's something that they'd all say, now it's time to get the returns," Schroeter said in the conference call. "We have driven very heavy investment. That has impacted our margins... So yes, it is time for us to get the returns. We have invested quite heavily. The strategy is right. We hear it from our clients every day. The places that we are moving them to and the work we do in the core is highly, highly valuable to them. So I think now, to shorthand that, is yes. Now it's time."
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