IBM Turns Corner With Newer Businesses -- WSJ
July 19 2018 - 3:02AM
Dow Jones News
More than half of sales in latest quarter came from initiatives
like cloud computing
By Micah Maidenberg
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 (July 19, 2018).
International Business Machines Corp. said it generated more
than half of its quarterly revenue from newer services such as
cloud and artificial intelligence, a first for the venerable tech
giant as it shifts away from equipment sales and other legacy
businesses.
It was the third consecutive quarter in which IBM's revenue rose
from the previous year, a feat that gives Chief Executive Ginny
Rometty breathing room to execute a turnaround after a nearly
six-year stretch of shrinking quarterly sales under her
leadership.
Revenue in the second quarter rose 3.7% from a year earlier to
$20 billion. Analysts polled by FactSet had expected $19.9 billion
in revenue.
Ms. Rometty is trying to turn IBM around by pinning its future
on a series of fast-growing businesses lumped under what the
company calls strategic imperatives, including cloud computing,
security and data analytics. Revenue from those offerings totaled
$10.1 billion in the quarter, up 15% from a year ago.
"We've done the work to reposition our company," IBM finance
chief James Kavanaugh said about its strategic-imperatives
initiative. "We are seeing our investments in these high-value
segments of the IT industry now paying off."
The Armonk, N.Y., company's profit rose 3.1% to $2.4 billion.
Excluding special items, IBM had a profit of $3.08 a share.
Analysts polled by FactSet were expecting an adjusted profit of
$3.04 a share.
IBM shares, down 6% over the past year, rose 2.8% to $148.50 in
after-hours trading on Wednesday.
Despite reporting higher revenue and profit in the latest
quarter, IBM still faces challenges on several fronts. In its
Cognitive Solutions segment, which includes services tied to the
Watson supercomputer, sales fell 1% after adjusting for currency
moves to $4.6 billion.
Mr. Kavanaugh told analysts during a conference call that the
segment includes a transaction-processing software business
tethered to mainframe products, and that its decline "wasn't
unexpected."
Sales in Systems, a segment that includes the company's
mainframe business, shot up 25% to $2.2 billion. Some observers
believe the company will likely find it difficult to maintain that
pace when a purchasing cycle for its mainframe products starts to
wind down.
IBM's margins, another concern for shareholders, fell in the
latest quarter. The gross profit margin of 46% compared with 46.5%
in the year-earlier period.
The company said its pretax profit margin, a different profit
measurement, widened in the period. During the conference call, Mr.
Kavanaugh added that IBM expects to expand gross margins in its
services businesses in the second half of the year.
IBM said it expects full-year earnings per share of at least
$11.60, up 2 cents from its prior forecast. The company maintained
its forecast for adjusted earnings of at least $13.80.
--Jay Greene contributed to this article.
Write to Micah Maidenberg at micah.maidenberg@wsj.com
(END) Dow Jones Newswires
July 19, 2018 02:47 ET (06:47 GMT)
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