IBM Says Profit And Sales Drop -- WSJ
October 18 2017 - 3:02AM
Dow Jones News
By Ted Greenwald
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 18, 2017).
International Business Machines Corp. had gains in its hardware
and artificial-intelligence divisions in the third quarter but over
all profit and sales declined, a sign the company's drawn-out
transformation still has a way to go.
Revenue was down 0.4% from a year earlier to $19.15 billion, a
minor slide but enough to make it the 22nd consecutive quarter of
year-over-year declines.
Still, revenue from the hardware division, which rolled out new
mainframe computers over the summer, marked its first gain from a
year earlier since 2015.
Profit fell 4.5% to $2.73 billion. Margins narrowed over all and
in most business units, though progressively less since the
beginning of the year -- a hopeful sign of stabilization.
IBM's results were buoyed by currency exchange rates that,
according to David Grossman of Stifel, worked in the company's
favor for the first time since 2011. IBM makes roughly half its
sales outside the U.S.
"We said we'd have a better second half than first, and we did a
bit better on the revenue line," IBM Chief Financial Officer Martin
Schroeter said in an interview. "We're well positioned to deliver
exactly what we said in the fourth quarter."
Wall Street agreed, sending shares of Big Blue up nearly 5% in
after-hours trading after finishing down a hair at $146.54 during
the regular trading day. The stock had fallen 12% this year,
compared with the S&P 500's gain of 14%.
IBM is trying to transition from older, shrinking businesses
such as building and maintaining technology on customers' premises
to higher-growth operations like delivering pay-as-you-go services
over the internet.
The company has placed big bets on emerging technologies such as
its Watson AI platform and blockchain, the networked ledger at the
heart of digital currencies such as bitcoin.
The newer businesses IBM calls strategic imperatives, which
include cloud computing and Watson-driven applications in health
care and finance, grew 11% to $8.8 billion from a year earlier.
Cloud revenue rose 20% to $4.1 billion from a year earlier.
Strategic imperatives are the crux of IBM's prospects for
transformation. Those newer businesses accounted for 45% of total
revenue in past 12 months, up 2 percentage points from a quarter
ago, and are approaching the mark where they could push the company
back to growth.
However, their growth rate has slowed in recent quarters,
roughly matching the low double-digit rate at which older
businesses have been declining, some analysts say, and raising
questions about whether the transition Chief Executive Ginni
Rometty initiated five years ago is stalling.
"The results were a bit better than expectations and certainly
better than feared," said Toni Sacconaghi of Bernstein Research.
"But the real fundamental question is: Is the relative strength
driven by mainframes, which are highly cyclical, or is this the
start of a broader turnaround?"
There are reasons for optimism, and some analysts believe the
company is turning a corner, however slowly.
Josh Olson, an analyst with Edward Jones, noted IBM's healthy
cash flow and "strong position in the global marketplace." If the
company can better commercialize its innovations, it will return to
growth over the next few years, he said before the earnings
release.
IBM will launch new server chips in the coming quarter, and it
recently introduced new mainframes, the refrigerator-size computers
that drive transactions for large banks, insurers and retailers,
that are expected to boost results further in the coming
quarters.
The Armonk, N.Y., computing giant reported per-share earnings of
$3.30 on an adjusted basis, omitting items such as acquisition- and
retirement-related charges. Analysts had expected $3.28 a share on
$18.6 billion in revenue, according to a survey by Thomson
Reuters.
Write to Ted Greenwald at Ted.Greenwald@wsj.com
(END) Dow Jones Newswires
October 18, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
International Business M... (NYSE:IBM)
Historical Stock Chart
From Aug 2024 to Sep 2024
International Business M... (NYSE:IBM)
Historical Stock Chart
From Sep 2023 to Sep 2024