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ibm watsonIBM this afternoon reported revenue of $20.2 billion for its second quarter ending June 30, sliding 2.6 percent from the year-ago period as the company continues trying to cut its reliance on hardware as a revenue source. Net income was $2.5 billion, or $2.61 per diluted share, compared with $3.50 per diluted share a year ago.

Analysts had expected Big Blue to report earnings of $2.89 per share on revenue of $20 billion, according to a Thomson Reuters consensus estimate.

“We had solid organic growth. We got done what we set out to do, with good progress in cloud,” said CFO Martin Schroeter in a phone briefing following the close of markets. “Our strongest growth came from Cognitive Solutions,” a segment that includes IBM’s all-important Watson AI cloud services and Watson Internet of Things (IoT) and health offerings, he said.

Shares were up 5 percent, trading at $160.72, in after-hours trading. IBM’s stock is up more than 15 percent in the past year.

The company reported 12 percent growth within the areas it calls “strategic imperatives”: cloud, mobile, social, security and analytics.

In contrast, revenue from systems hardware declined 28 percent and storage hardware revenue dropped by 13 percent as the machines that made IBM great are supplanted by endless racks of no-name servers amassed in huge data centers worldwide and accessed over the Internet.

Second-quarter revenue for the cognitive-solutions segment was $4.7 billion, down 7 percent from the same period last year. Revenue for the technology services and cloud platforms segment, which includes cloud-based Infrastructure as a Service (Iaas) and Platform as a Service (PaaS), was $8.9 billion, down 2 percent year over year.

Some 23 percent of IBM’s quarterly revenue came from the cognitive solutions segment, while 44 percent came from the technology services and cloud platforms segment. Those figures were 26 percent and 46 percent, respectively, a year ago.

During the second quarter, IBM introduced Watson for Cyber Security, a knowledge base of security information; and Watson Company Analyzer, meant to help companies build relationships and assess competitors, Schroeter said.

In a release, IBM said that it has garnered cloud revenue of $11.6 billion over the last year, and that its cloud as-a-service annualized run rate is $6.7 billion based on the second quarter’s results, up 50 percent year to year.

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