IBM revenues continue to drop but cloud strategy pleases Wall Street
Wed 18 Oct 2017
IBM has released its third quarter results, beating Wall Street predictions on earnings per share (EPS), despite a continued drop in revenue.
The legacy computing giant saw its 22nd straight quarter of decline in revenue, but witnessed progress in cloud computing and what it calls its ‘strategic imperatives.’
The improved results in these areas and a move away from legacy hardware and software has led analysts to give cautiously positive reports.
Big Blue saw EPS hit $3.30 (approx. £2.51) before GAAP, equating to diluted earnings per share of $2.92. Analysts had estimated $3.28, meaning the firm beat predictions by a couple of cents.
The positive result represents IBM’s move towards its strategic move towards the modern technology landscape, and away from legacy models. It is focussing on areas such as cloud and security through its z Systems mainframe.
Revenue in the ‘strategic imperatives’ area was $34.9 billion, up 10%, and representing 45% of total IBM revenue. Cloud revenue specifically was $15.8 billion over the trailing 12 months, a rise of 25% year on year. As-a-service earnings came to $8.8 billion, and a further $7 billion came from hardware, software and services to IBM clients.
IBM chairman, CEO, and president, Ginni Rometty, said: “In the third quarter we achieved double-digit growth in our strategic imperatives, extended our enterprise cloud leadership, and expanded our cognitive solutions business.
“There was enthusiastic adoption of IBM’s new z Systems mainframe, which delivers breakthrough security capabilities to our clients.”
The focus on these strategic aspects of the business reflects the fact that overall revenue was still slightly down year on year. However, progress in these specific areas seems to have satisfied traders, with IBM shares up 5% after the close of trading.
IBM SVP and CFO, Martin Schroeter, commented on the company’s financial position: “During the first three quarters of the year, our strong free cash flow has enabled us to maintain our R&D investments and to expand IBM’s cloud and cognitive capabilities through capital investments. In addition, we have returned nearly $8 billion to shareholders through dividends and share repurchases.”
In a note, Deutsche Bank analyst Sherri Scribner wrote: ‘We were pleased to see the quality of IBM’s earnings improve, with IP income and taxes being less of a driver of upside than in prior quarters.’
However, Scribner also stated that: ‘We see the business as secularly challenged due to its high exposure to a legacy business model, and see continued margin pressure over the long-term as IBM’s business is pressured by competition from lower-cost offerings and the cloud.’