Uh oh: SEC questions if IBM’s cloud math is water vapor

The way IBM (s ibm) accounts for revenue from its various cloud computing efforts is subject to a Securities & Exchange investigation, according to the company’s just-released 10-Q filing. IBM said it is cooperating with the investigation, which launched in May.
Armonk, N.Y.-based IBM stands behind how it reports that revenue — which is according to “generally accepted accounting principals,” a IBM spokesman told Bloomberg News.
IBM, like virtually every legacy IT provider, is trying to move more customer workloads to the cloud. By virtue of its size and the sheer number of hardware, software and service products it fields, accounting for revenue is very complex. Many tech companies have had to restate numbers as they navigate the change from delivery of on-premises software and hardware to the cloud.
In the last quarter, IBM dropped $2 billion to buy SoftLayer, a privately-held cloud and managed hosting provider and on its second quarter earnings call last month, IBM said cloud revenue for the first six months was up 70 percent year over year.
CEO Ginni Rometty has held fast to the cloud-and-services strategy set forth by her predecessor Sam Palmisano and has aggressive goals for that business. IBM has said its new cloud services division, which encompasses SoftLayer, will contribute $7 billion to the bottom line by 2015, meaning that the “cloud business” however that is defined — should make up a big chunk of the $20 per share earnings the company has promised to attain by that date.