IBM's Shares Tumble as Challenges Remain in Hunt for Growth
April 17 2019 - 3:15PM
Dow Jones News
By Patrick Thomas
International Business Machine Corp.'s shares were off more than
4% Wednesday after the company posted a third consecutive quarter
of declining revenue, raising concerns about its turnaround and its
ability to compete in the crowded cloud market.
In its latest quarter, growth was flat or declined in all of
IBM's main reported lines of business, including cloud services and
information-technology-support services. Net income fell 5.2% to
$1.59 billion.
Analysts were largely disappointed in IBM's top-line decline,
but many were still optimistic the computing giant is on track with
investing in faster-growing parts of its business.
IBM has struggled to compete in the modern computing era as the
rise of cloud giants such as Amazon.com Inc. and Alphabet Inc.'s
Google have challenged an old model where big companies handled
their critical computing needs largely in-house. IBM sees promise
in the so-called hybrid cloud -- the idea that companies will
increasingly use a combination of cloud services and their own
equipment to accomplish those tasks -- and aims to expand that
business.
"We had strong performance in offerings that helped clients with
their digital transformations and journeys to cloud," Chief
Financial Officer James Kavanaugh said during a conference call
with analysts on Tuesday. "At the same time, we continue to take
actions to optimize our portfolio while investing to lead in the
emerging, high-value areas of the IT industry."
Since taking over in 2012, Chief Executive Ginni Rometty has
poured resources into cloud computing and new technologies such as
artificial intelligence, to shift away from traditional growth
engines such as equipment sales and IT services that haven't been
growing as rapidly.
"While the headline revenue miss will be positioned negatively
by most, we continue to believe the underlying fundamentals are
stable to improving," analysts at Stifel said in a research
note.
Goldman Sachs analysts said they were encouraged by IBM's
results -- including a 10% rise in revenue from the company's cloud
businesses in the past 12 months -- but said investors remain
skeptical of the company's ability to sustain improvements.
Shares in IBM recently traded at $139.30, and their price has
fallen 13% over the past year.
IBM's year-over-year revenue had fallen in virtually every
quarter since Ms. Rometty took over until the last quarter of 2017.
The company also posted revenue growth in the first half of last
year, but that turnaround proved short-lived: Revenue declined
again in the last two quarters of 2018.
Bernstein analysts doubted IBM's ability to boost sales while
traditional equipment is still its dominant business. IBM typically
launches a new mainframe system every 2 1/2 years. "IBM remains
challenged to grow its top line outside of mainframe cycles," the
Bernstein analysts said.
IBM is aiming to bolster its hybrid-cloud strategy through the
company's acquisition of Red Hat Inc., an open-source software and
services company that helps businesses streamline their computing
strategies as they grow. The deal, expected to close in the second
half of this year, is IBM's largest acquisition to date and is
valued at roughly $33 billion.
Some analysts say the company needs to show consistent growth
before Wall Street believes the deal supports a turnaround
narrative.
"IBM's story remains a work in progress, especially in terms of
stability and consistency, which we believe, management needs to
address before the pending RHT (Red Hat) acquisition closes,"
analysts at Wedbush said in a note.
Write to Patrick Thomas at Patrick.Thomas@wsj.com
(END) Dow Jones Newswires
April 17, 2019 15:00 ET (19:00 GMT)
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