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SEC investigating IBM over cloud revenue

A man passes by an illuminated IBM logo at the CeBIT computer fair in Hanover February 27, 2011. REUTERS/Tobias Schwarz
A man passes by an illuminated IBM logo at the CeBIT computer fair in Hanover February 27, 2011. REUTERS/Tobias Schwarz

NEW YORK (Reuters) - U.S. regulators are investigating how International Business Machines Corp reports revenue from its cloud computing business, the company said on Wednesday.

IBM said it learned of the investigation, being conducted by the U.S. Securities and Exchange Commission, in May. The company made the disclosure in its quarterly report filed with the SEC. It gave no details on the probe.

IBM, which does not break out its cloud computing revenue separately, has said it aims to generate $7 billion annually in revenue from cloud services by the end of 2015.

Cloud computing lets companies rent computing power, storage and other services from data centers shared with other customers - typically cheaper and more flexible than maintaining their own.

Some analysts said the SEC probe likely would not affect IBM much.

"At first glance, this may appear to be a concerning issue; however, we believe cloud revenue recognition can be 'cloudy' at times, given the nascent stages of its development, and we do not expect a material impact on IBM from this investigation," said Topeka Capital Markets analyst Brian White.

He added that cloud computing can include software, server, storage, network or databases used in different layers of the cloud, and not all have "clear-cut revenue recognition policies."

Last month IBM expanded its cloud offerings with the $2 billion acquisition of SoftLayer Technologies.

IBM said it was cooperating with the SEC and repeated a disclosure made on April 30 that the Department of Justice is investigating allegations of illegal activity by a former IBM employee in Poland, as well as transactions in Argentina, Bangladesh and Ukraine.

It said the Justice Department is also still seeking information regarding the company's global compliance with the Foreign Corrupt Practices Act and its public sector business.

Two other investigations were recently settled.

On July 25 a federal judge signed off on a 2011 settlement IBM made with U.S. regulators over charges of foreign bribery.

IBM in March 2011 agreed to pay $10 million to resolve SEC charges over improper gifts to government officials in South Korea and China.

IBM shares were down 0.2 percent to $195.58 in midday trading.

(Reporting by Nicola Leske and Sinead Carew; Editing by Gerald E. McCormick, Nick Zieminski and John Wallace)

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