After Promising Investors $7 Billion Revenue By 2015, The SEC Is Examining IBM's Cloud Revenue

IBM CEO Ginny RomettyIBM CEO Ginny Rometty

IBM revealed today that in May the SEC launched an investigation into how IBM reports its cloud revenue.

This information was revealed in IBM’s quarterly earnings report filed with the SEC.

A company spokesperson told Business Insider:

“IBM’s reporting of cloud revenue is the result of a rigorous and disciplined process, and we are confident that the information we have provided has been consistently accurate.”

Cloud computing is one of the major areas that IBM is counting for big growth. Still, IBM has, so far, not really reported cloud computing revenues outright, instead bundling them into its Global Technology Services unit.

However, IBM has revealed some numbers as part of some big promises made to investors.

When IBM bought cloud computing company SoftLayer for about $2 billion June, (reportedly outbidding rival EMC to do so), IBM said it planned to nab at least $7 billion in cloud computing revenue by 2015 and $3 billion of that growth will be “incremental,” the spokesperson told us. 

That should mean that cloud computing revenues are at about $4 billion right now.

SoftLayer would likely only account for a small portion of that growth. It raked in an estimated $400 million in revenue in 2012.

IBM also created a new Cloud Services division at that time, just after it learned of the SEC investigation. The new division includes SoftLayer and IBM’s home-grown cloud computing business, SmartCloud. So, it remains to be seen if IBM will break out the new unit’s revenues.

The other potential issue is one that all large IT companies are facing: when IBM can recognise cloud revenue. On a cloud computing contract, companies are supposed to recognise revenue when the customer pays for the service, not when the customer signs the contract.

As companies like IBM shift from sales of software licenses and equipment to pay-as-you-go cloud computing services, the reporting of revenue can be problematic. It can look like a company is losing revenue when it is really stretching out the recognition across a longer period of time.

Because of that, we wouldn’t be surprised to see the SEC investigating how many tech companies report cloud revenue.

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