IBM Revenue Lags as Cloud Pivot Remains a Challenge
July 17 2019 - 04:53PM
Dow Jones News
By Asa Fitch
International Business Machines Corp. reported another drop in
quarterly revenue Wednesday as Chief Executive Ginni Rometty
struggles to remake Big Blue for the modern computing age after
more than seven years of leading the company.
Profit rose 3.9% to $2.5 billion as margins expanded, IBM said.
Revenue, however, fell 4.2% from a year earlier to $19.16 billion,
the fourth consecutive quarterly revenue decline.
IBM has trailed Microsoft Corp. and Amazon.com Inc. as customers
race to do more of their computing in the cloud -- online services
that free companies from the need to buy and maintain their own
computers. As competitors report consistently strong revenue
growth, buoyed by sales of their cloud services, IBM has absorbed a
string of declines.
While IBM says its cloud business is growing -- cloud revenue
climbed by 5% in the second quarter -- it is far behind the 41%
annual cloud revenue growth Microsoft saw in its latest
quarter.
Meanwhile, other parts of IBM's business are in a gradual
decline. Revenue in the company's IT services division fell by 6.7%
year-over-year in the second quarter as the company lost sales from
lower-margin equipment it is transitioning away from.
The division that houses IBM's mainframe business also fell
almost 20%, although it faced a tough comparison to last year, when
the release of a new generation of those computers buoyed
sales.
Ms. Rometty is now betting on IBM's $34 billion acquisition of
open-source software giant Red Hat Inc. to seed a revenue rebound
after earlier cloud deals like the $2 billion acquisition of
Dallas-based SoftLayer failed to vault the company over the
competition. The Red Hat deal, the biggest in IBM's history, closed
earlier this month.
"That Red Hat acquisition will change the dynamics of our growth
profile, and it will change the dynamics of our cloud growth
profile overall," Chief Financial Officer James Kavanaugh said. The
deal would boost revenues by two percentage points a year over the
next five years, he said.
But on Wednesday, IBM said revenue fell, to a level in line with
analysts' expectations. Profit rose to $2.81 a share. On an
adjusted basis, earnings were $3.17 a share, which beat Wall Street
projections.
Write to Asa Fitch at asa.fitch@wsj.com
(END) Dow Jones Newswires
July 17, 2019 16:38 ET (20:38 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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