Editor’s note: IBM closed 2016 with the achievement of its percent of revenue CAMSS [Cloud, Analytics, Mobile, Security and Social] goal, but revenue declines as spelled out in its latest earnings report Thursday indicate its portfolio transformation is still underway. says Technology Business Research.

HAMPTON, N.H. – IBM closed 2016 with the achievement of its percent of revenue CAMSS [Cloud, Analytics, Mobile, Security and Social] goal, but revenue declines indicate its portfolio transformation is still underway

With the close of 2016, IBM achieved its goal of generating 40% of revenue through its CAMSS initiatives two years earlier than its initially stated goal in 2015 to achieve this milestone by 2018. This is a key piece of evidence that IBM is effectively executing on acquisition and R&D initiatives designed to concentrate IBM’s business around supporting customers’ digitization initiatives. IBM’s ability to adapt its portfolio is further underscored by cloud revenue achieving 33% year-to-year growth and generating a growing percentage of corporate revenue.

However, IBM’s revenue shrank for the 19th consecutive quarter during 4Q16, decreasing 1.2% year-to-year to $21.8 billion, as the company’s portfolio and business model shifts are not yet offsetting the top-line impact of broader industry trends such as hardware commoditization. Further, TBR notes that contraction to the overall revenue base contributed to IBM’s ability to achieve its CAMSS percentage of revenue goal earlier than initially expected, as the vendor has yet to achieve its other stated goal of achieving $40 billion in annual revenue from its CAMSS initiatives by 2018.

Moving forward, we expect IBM to focus on accelerating monetization of strategic CAMSS-related investments such as Watson and blockchain by accelerating time-to-market, and utilizing case studies to cultivate a business use case. TBR believes this will support IBM’s achievement of revenue growth in 2017 as well as achieving its stated $40 billion CAMSS revenue goal.

Despite successes in IBM’s CAMSS initiatives, and in particular cloud, the vendor’s Total Systems business declined a reported 12.5% year-to-year in 4Q16, indicating that portfolio modernization is still not able to offset declining demand for high-end and proprietary servers and storage arrays. However, Systems declines lessened, as in 3Q16 the segment fell nearly 21% year-to-year. Lessening declines are attributable to the beginning of an upward swing in the cyclicality of IBM’s z Systems business. IBM continues to evolve its mainframe, Power systems and storage strategies to accommodate modern workload requirements, such as real-time data processing.

We attribute this discrepancy in financial performance to the fact that some hallmark mainframe workloads such as transaction processing for financial services customers are not ideally suited for deployment on a cloud infrastructure implementation due to latency and security concerns.

Overall, TBR expects IBM’s (NYSE: IBM) Systems revenues to continue to shift toward CAMSS as it integrates compute, storage and Infrastructure as a Service (IaaS) capabilities and invests in ecosystem-focused innovation to continue modernizing its portfolio and brand perception.

(C) TBR