IBM Says SEC Opts Against Enforcement Action on Cloud Accounting

Jun 03, 2014 12:01 am ET

June 3 (Bloomberg) -- International Business Machines Corp. said the U.S. Securities and Exchange Commission doesn’t plan to recommend enforcement action against the company after probing how it reports revenue from offsite cloud services.

The SEC concluded its investigation into IBM’s accounting methods last week, the company said yesterday in a filing. The probe, which the company learned about a year ago, examined sales for services delivered over the Internet, such as storing customers’ data and software applications. IBM stood by its accounting methods and said it cooperated with the SEC.

Chief Executive Officer Ginni Rometty has been relying on cloud services as she revamps the company in a shifting technology industry, where customers increasingly store data and software remotely rather than on site. That’s limited demand for IBM’s more traditional servers and mainframes.

Rometty has boosted the company’s investment in cloud services to lure customers to its SoftLayer unit, which IBM acquired last year for $2 billion in its biggest takeover since 1995. This year, IBM committed $1.2 billion to add 15 new data centers and created a developer platform to attract programmers.

The company’s cloud revenue rose more than 50 percent last quarter from a year earlier, and cloud offerings delivered as a service are now on pace to generate about $2.3 billion a year.

IBM is also integrating its Power Systems hardware into SoftLayer’s cloud to help support its Watson data-analysis technology.

IBM has a goal of reaching $7 billion in cloud revenue by 2015, with about $3 billion from new business and the rest from current contracts shifting over to the cloud category. That’s still a fraction of IBM’s total $100 billion in annual sales.

Shares of IBM were little changed in late trading yesterday after closing at $185.69 in New York.