IBM’s cloud revenue reporting practices under investigation

The Securities and Exchange Commission is investigating the way in which IBM reports its cloud computing revenues, the company revealed yesterday. 

"In May 2013, IBM learned that the SEC is conducting an investigation into how IBM reports cloud revenue," the company said in its quarterly filing yesterday. "IBM is cooperating with the SEC in this matter."

A spokesperson for IBM told the Bloomberg news agency that its "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."

IBM does not specifically break out its cloud revenues in its financial reports. However, it does provide relative growth figures. In the first six months of this year, for example, cloud revenues grew by 70%, it said in yesterday's report. 

Analysts have initially interpreted the news as an indication of the complexity of reporting cloud revenues.

Users typically pay for cloud services on a subscription basis. However, traditional IT companies are used to booking revenues for software sales upfront. 

There is also the question of remunerating salespeople for closing cloud computing deals. For conventional software contracts, sales commission is based on the upfront costs. Companies that want their sales staff to push cloud services instead of on-premise software need to find a way to reward them appropriately. 

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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