[caption id="attachment_93134" align="aligncenter" width="700"] Source: Company reports/Coresight Research[/caption]   2Q19 Results IBM reported 2Q19 revenues of $19.16 billion, down 4.2% year over year and in line with the consensus estimate. Management highlighted growth in software, consulting and cloud revenue, in addition to continued margin expansion. The 100-bps expansion in the GAAP gross margin was the largest expansion in more than five years. SG&A expenses from several charges were essentially neutral to total expense and to profit growth in the quarter. Adjusted EPS was $3.17, up 3.0% from the year-ago quarter and beating consensus of $3.08. GAAP EPS from continuing operations was $2.81, compared to $2.61 in the year-ago quarter. IBM closed the acquisition of Red Hat on July 9. Management commented that IBM continued to grow in the high-value areas of the business, led by strong performance in the cloud and cognitive software segment. The completion of the Red Hat acquisition is expected to create the industry’s only true open hybrid multi-cloud platform, strengthening IBM’s leadership position and helping clients succeed in their digital reinventions. Results by Segment Segment performance was as follows: [caption id="attachment_93135" align="aligncenter" width="700"] Source: Company reports/Coresight Research
Note: Gross margins are GAAP [/caption]   Cloud & Cognitive Software

• Cloud and data platforms grew 5% (up 7% adjusting for currency).
• Cognitive applications grew 3% (up 5% adjusting for currency).
• Transaction processing platforms grew 2% (up 4% adjusting for currency).

Global Business Services (includes consulting, application management and global process services)

• Revenues grew 0.5% (up 3.4 % adjusting for currency), with broad-based strength led by growth in consulting, up 2% (up 5% adjusting for currency).

Global Technology Services (includes infrastructure and cloud services and technology support services)

• Revenues declined 6.7% (down 3.5% adjusting for currency).

Systems (includes systems hardware and operating systems software)

• Revenues declined 19.5% (down 18.0% adjusting for currency), with growth in Power, which more than offset the impact of product cycle changes in IBM Z and Storage.

Global Financing (includes financing and used equipment sales)

• Revenues declined 11.0% (down 8.5% adjusting for currency), reflecting the wind-down of OEM commercial financing.

Implications for Retail The newly created cloud and cognitive software segment combines software for hybrid cloud management with data and AI platforms and includes solutions for specific verticals and domains, such as retail. These platforms are also increasingly being infused with AI. Management also reported strong growth in verticals such as Watson Health, supply chain and weather. Outlook IBM said it remains on track to meet its guidance for 2019 of adjusted EPS of $13.90 through the second quarter and plans to update guidance for the Red Hat acquisition on August 2. The company reiterated that it continues to expect the Red Hat acquisition to be accretive to cash flow in the first year and accretive to adjusted EPS in the second year. Prior guidance is as follows:

• Adjusted EPS of at least $13.90.
• GAAP EPS of at least $12.45.
• Free cash flow of approximately $12 billion.