IBM Results Decline Amid Pockets of Growth -- 2nd Update
July 18 2016 - 6:44PM
Dow Jones News
By Rachael King
International Business Machines Corp. sales continued to decline
in its most recent quarter, even as it made gains in strategic
areas such as cloud computing and data analytics.
The Armonk, N.Y., company reported Monday that its revenue for
the second quarter dropped 2.8% to $20.24 billion, as its
established businesses continue lose ground to cloud computing
services delivered over the internet. The company has posted
revenue declines for 17 straight quarters.
Nonetheless, revenue was better than analysts' expectation of
$20.03 billion, according to Thomson Reuters. The bottom line also
fell compared with one year earlier, but exceeded expectations. IBM
shares climbed 2.6% to $164 after hours.
The company reaffirmed its guidance of full-year earnings per
share of $13.50. Analysts had expressed concern that the forecast
might decline due to economic uncertainty surrounding the U.K.'s
decision in June to leave the European Union.
"Brexit didn't help, but from everything we've seen we haven't
changed our view," Martin Schroeter, IBM's chief financial officer,
said in an interview.
The computing giant said earnings fell to $2.5 billion, or $2.61
a share, from $3.45 billion, or $3.50 a share, one year
earlier.
In January, IBM had lowered guidance for the year and Mr.
Schroeter said earnings were in line with that projection. Still,
the most recent quarter marked the eighth quarter of lower core
earnings per share in the past 10 quarters, reflecting IBM's
struggle to build new businesses as older ones shrink. Before 2014,
the company hadn't posted a profit decline since 2003.
IBM said its revenue from cloud services grew 30% to $3.4
billion during the quarter. Those services include SoftLayer, which
sells access to computing capacity over the internet, and Bluemix
which, among other capabilities, sells access to software over the
web. The cloud business during the quarter added new customers
including Pratt & Whitney, Halliburton Co. and Kaiser
Permanente.
The company also is starting to see new revenue from the
billions of dollars it spent on acquisitions in the past year. IBM
closed acquisitions of 11 companies in areas such as data
analytics, cloud and security. Those deals include Truven Health
Analytics Inc., cloud-based video services firm Ustream Inc. and
Weather Co.
While the company has seen pockets of growth in what it calls
its "strategic imperatives -- cloud computing, artificial
intelligence, data analytics, mobile, social and security -- some
analyst said they won't be convinced of the company's successful
transition from waning older businesses until they see revenue
growth across the board.
"Despite the fact that revenues for these strategic imperatives
over the past four to five years have really been growing well, and
have been becoming a bigger part of the mix, the growth rate of the
company in terms of revenue has actually been flat to down," Toni
Sacconaghi, an analyst at Sanford C. Bernstein & Co. said in an
interview ahead of Monday's earnings disclosure.
IBM's path to new businesses has been challenging. The laid off
tens of thousands of employees over the past year, even as it has
hired tens of thousands of new employees in these new businesses.
IBM says that its strategic imperative businesses grew by 12% to
$8.3 billion for the quarter. These businesses in the past year
logged revenue of $30.7 billion, making up 38% of the top line.
IBM shares have dropped by 17% since Chief Executive Virginia
Rometty took over in January 2012. The S&P 500 index rose 70%
during the same period.
Write to Rachael King at rachael.king@wsj.com
(END) Dow Jones Newswires
July 18, 2016 18:29 ET (22:29 GMT)
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