Editor’s note: Jennifer Hamel is Senior Analyst with Technology Business Research. She reviews IBM’s latest financials, which were disclosed Tuesday.

HAMPTON, N.H. – IBM Services missed year-to-year revenue growth in 3Q18, which we attribute to the company’s emphasis on margin improvement – particularly workforce rebalancing – over sales expansion during the first half of this year.

The result is a leaner, more agile business that is better equipped for the new era of digital transformation (DT) and hybrid IT management. Still, slowing strategic imperatives growth and fierce competition across the consulting and IT services market suggests IBM Services has not moved fast enough to guarantee its leadership in the new era, despite an increasing stream of impressive client stories.

Declines in traditional hardware maintenance and legacy application services are a given – and no longer an excuse for tepid revenue performance in light of peers’ faster growth in DT services – meaning IBM must rev its sales, talent and, likely, acquisition engines to restart services revenue expansion in 4Q18.

IBM’s mixed financials: Revenue misses but earnings top Street

Global Business Services (GBS) and Global Technology Services (GTS) continue to work together to fulfill the unified IBM Services brand strategy, evidenced by multiple client wins highlighting business outcome-driven DT initiatives enabled by modernized IT infrastructures.

Sequential margin expansion continued in both segments in 3Q18, with GBS also achieving its highest pretax margin in nearly three years, a testament to that business unit’s multiyear adaptation to how enterprises now expect to buy and consume consulting and applications services.

However, we expect IBM will need to invest more in DT sales and delivery talent to improve signings and sustain profitable revenue growth.

https://wraltechwire.com/2018/10/16/big-blues-cyber-rig-ibm-takes-cybersecurity-training-on-the-road/

In TBR’s 3Q18 IBM Services Initial Response, we will provide in-depth analysis on how IBM is responding to customer skepticism around artificial intelligence (AI) adoption with tools and consulting to mitigate model bias, and how refreshed IBM Network Services offerings cater to cloud-driven demand for next-generation network solutions.

(C) TBR

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