The infamous streak is finally broken. International Business Machines (NYSE:IBM), after 22 consecutive quarters of slumping revenue, reported revenue growth in the fourth quarter. Revenue jumped 4% year over year, or 1% adjusted for currency, as the strength of its newest mainframe system and its strategic imperatives finally overcame declining legacy businesses.

An across-the-board beat

IBM's total revenue came in at $22.5 billion, up from $21.8 billion in the prior-year period. After a strengthening U.S. dollar ravaged IBM's results in 2015, a weakening dollar aided the company's top line to the tune of 3 percentage points during the fourth quarter. Revenue was about $490 million above the average analyst estimate.

IBM's Global Center for Watson IoT in Munich, Germany.

IBM's Global Center for Watson IoT in Munich, Germany. Image source: IBM.

IBM's strategic imperatives, a collection of its growth business, produced year-over-year growth of 17% during the fourth quarter, or 14% adjusted for currency. These businesses produced $36.5 billion of revenue in 2017, up 11% compared to 2016 and representing 46% of IBM's total revenue.

The cloud business, which is part of the company's strategic imperatives, produced $5.5 billion or revenue during the fourth quarter, up 30% year over year. Full-year cloud revenue grew 24% to $17 billion, while the cloud-as-a-service annual exit run rate reached $10.3 billion, up 20% compared to one year ago. Analytics revenue jumped 9%, mobile revenue rose 23%, and security revenue surged 132%.

Turning to the bottom line, IBM took a $5.5 billion charge related to the U.S. tax bill that passed late last year. This charge includes a tax on accumulated overseas profits, and the revaluation of deferred tax assets and liabilities. GAAP earnings per share came in at a loss of $1.14 during the fourth quarter as a result of this charge. IBM's operating EPS, a non-GAAP number that excludes this charge, was $5.18, beating the average analyst estimate by $0.01.

Full-year free cash flow was $13 billion, excluding receivables related to the financing business. That's up from $11.6 billion in 2016. Full-year operating EPS was $13.80, in line with the company's prior guidance.

IBM's growth was driven in large part by the z14 mainframe, which began shipping in September 2017. The systems segment, which includes hardware and operating systems software, grew revenue by 32% year over year to $3.3 billion. Mainframe revenue jumped 71% year over year, and it should continue to grow, albeit at a slower pace, in the first half of this year.

Growth in 2018

IBM's fourth-quarter growth is no fluke. The company provided limited guidance in its earnings presentation, but did say that it expects revenue growth and margin stabilization in 2018.

Currency will likely continue to help boost IBM's top line in 2018, as will sales of the z14 mainframe. The company's goal is to reach $40 billion of annual strategic imperatives revenue by the end of the year, which would be around half of its total revenue. It will take low double-digit growth to accomplish that.

IBM's transformation is not over, but returning to revenue growth is a critical step. I wouldn't expect anything beyond low single-digit growth from IBM, as its top line is still being held back by declining legacy businesses. But that's a lot better than the revenue losses the company has been reporting for the past five years.

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