IBM Sales Slump Expected to Continue -- Earnings Preview
July 17 2019 - 5:59AM
Dow Jones News
By Asa Fitch
International Business Machines Corp. is expected to report
second-quarter earnings after the market closes Wednesday. The
results follow several quarters of declining revenue, although the
company is betting the recently closed $34 billion acquisition of
open-source software firm Red Hat Inc. will help revive its
fortunes. Here's what to expect:
EARNINGS FORECAST: Analysts surveyed by FactSet expect IBM to
report adjusted earnings of $3.08 a share, the same as the results
a year before. A year ago, the company reported $2.83 billion in
net income.
REVENUE FORECAST: IBM is expected to report $19.17 billion,
which would mark the fourth consecutive year-over-year decline in
quarterly sales.
WHAT TO WATCH:
-- SALES WOES: Chief Executive Ginni Rometty has struggled to
keep IBM revenue growing as artificial intelligence, blockchain
technology and other new areas of focus haven't offset declines in
legacy businesses such as computing infrastructure services.
Revenue fell year-over-year for 22 quarters in a row after Ms.
Rometty took over IBM in 2012. A three-quarter spell of rising
sales that began in late 2017 proved temporary. Investors now are
looking for fresh signs of a turnaround after the company's
first-quarter revenue fell short of analysts' expectations.
-- RED HAT FUTURE: The recently closed acquisition of
open-source software giant Red Hat -- the biggest acquisition in
IBM's 108-year history -- is the centerpiece of Big Blue's strategy
to dominate in what it calls the "hybrid cloud," a computing model
where companies do much of their business online but keep their
most sensitive data in-house. Red Hat's revenue won't be included
in IBM's results Wednesday because the closing happened after the
second quarter, but management may discuss the financial impact and
IBM's goals for the business. On Tuesday, IBM announced a multiyear
alliance with AT&T Inc. that incorporates Red Hat technology.
The companies didn't disclose financial terms, but IBM said it was
worth billions of dollars.
-- CLOUD GROWTH: IBM sees the hybrid cloud as central to its
return to top-line growth. The cloud businesses grew by 10% in the
year before the start of the second quarter. IBM's long-term
success as a cloud player, however, is still uncertain. It trails
rivals Amazon.com Inc. and Microsoft Corp., which are both seeing
far higher growth rates in their respective cloud operations.
Investors want to see IBM accelerate its growth, but Chief
Financial Officer James Kavanaugh in April said that the company's
midteen percentage growth target would still allow it to gain
market share in the hybrid-cloud market.
Write to Asa Fitch at asa.fitch@wsj.com
(END) Dow Jones Newswires
July 17, 2019 05:44 ET (09:44 GMT)
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