IBM posted yet another Red Hat-fueled earnings report that company management said showed the fruits of its ongoing push toward a hybrid-cloud future but also highlighted broader company shortcomings that could begin to spoil in the coming quarters.

IBM CEO Arvind Krishna continued to strike a cautiously optimistic tone in releasing the vendor’s second-quarter financial results. This was on the back of what he admitted were “immediate challenges” tied to the ongoing economic uncertainty resulting from the COVID-19 pandemic.

Those challenges were evident in IBM’s Q2 financial performance as the vendor reported a 5% year-over-year drop in revenues to $18.1 billion for the quarter. The decline, combined with an increase in expenses, saw the company's net income cut nearly in half to just $1.4 billion for the quarter.

Nearly all of IBM’s positive financial momentum came from its Cloud & Cognitive Software business, which houses its Red Hat operations. That broader unit witnessed a 5% increase in revenues year over year to $5.7 billion.

However, all of that growth came from the Cloud & Data Platforms sub-business, which is where Red Hat’s operations more specifically sit, that posted a 30% year-over-year increase in revenues. Krishna also pointed out that IBM’s hybrid cloud platform has generated more than $23 billion in revenues over the past year.

IBM CFO Jim Kavanaugh attributed that surge to the ongoing Red Hat integration as it has “standardized on Red Hat OpenShift as our hybrid cloud platform and modernized our software portfolio to run on it.”

“We now have over 2,400 clients using our container solutions and nearly 600 IBM Services clients utilizing Red Hat technology,” Kavanaugh said, according to a Seeking Alpha transcript of IBM’s quarterly earnings call.

Krishna made IBM’s hybrid-cloud focus and the Red Hat business a big part of his taking over as CEO earlier this year. That push was backed by Krishna naming former Red Hat CEO Jim Whitehurst as president of IBM.

BMO Capital Markets Analyst Keith Bachman noted in a research report that IBM’s cloud revenues were actually down year over year when taking out the Red Hat business, which shows continued organic growth struggles.

“So, while still very solid growth, especially organically on a sequential basis, we believe the headlined [year-over-year] numbers are a bit misleading and we forecast headwinds in [the second half of 2020] as the [Red Hat] acquisition anniversaries,” Bachman wrote.

The only other business unit to show a year-over-year revenue increase was its Systems business, which is based on IBM’s Z-series mainframes. However, the vendor noted that business was still riding a refresh from late last year that it expects to subside over the coming quarters.

Despite the shine coming from IBM’s Red Hat business, it’s continuing to struggle across the rest of the organization. Krishna explained that IBM was “feeling the impact of austerity measures that businesses have put in place to preserve cash and capital. Our software and services results reflect this reality.”

IBM’s Global Business Services (GBS), which includes its professional services and management unit, and its Global Technology Services (GTS) business, which includes its Infrastructure and Cloud Services and its Technology Support Services businesses, both posted declining revenues.

Kavanaugh tied both to the ongoing COVID-19 pandemic, which is impacting customer spending habits. He explained that IBM’s reliance on recurring revenue streams was hit by the pandemic with “disruptions in transactional performance and volume reductions. Many clients continued to delay projects, defer purchases, and favor opex over capex spending in this environment.”