IBM Revenue Misses Wall St. Forecast on Weakness in its Biggest Arm

Ruben Fields
October 19, 2019

"The company's cloud business hasn't been able to make up for declining sales in its services, hardware and financing businesses", CNBC said. In a conference call, IBM Chief Financial Officer James Kavanaugh said sales were weighed down by lower client business volumes, especially in Germany and the United Kingdom. While it paid out $1.4 billion in dividends during the quarter, IBM barely spent $100 million in buybacks as the company has suspended buybacks to help pay for the Red Hat acquisition and to lower its debt.

But IBM shares dropped 5.2% to $134.75 in the extended session.

Investors will welcome the news that the company has maintained its full-year guidance, calling for adjusted earnings per share of at least $12.80 Dollars and cash flow of $12 billion USD. Burney Co bought 22,288 shares as the company's stock rose 5.46%. The segment was primarily led by IBM's security, IoT, data and AI platforms and hybrid cloud.

Unfortunately, sales from the Global Technology Services unit - IBM's biggest business overall, which caters to some of the world's biggest data center customers - fell 5.6%, to $6.7 billion.

Total revenue of $18 billion Dollars for the three months ended September 30 represents a decrease of 3.9% from the previous year, and missed Wall Street's expectations of $18.2 million USD.

"Anyone who thought there was going to be instant value between Red Hat and IBM was being too optimistic", Patrick Moorhead of Moor Insights & Strategy told SiliconANGLE.

Wedbush analyst Moshe Katri called the company's results mixed, given that Red Hat revenue grew by more than expected while overall revenue fell short amid challenges for the IT services business.

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"As enterprises increase hybrid cloud migrations, GTS engagements should pick up", King said.

With the Red Hat deal, the company's biggest so far, IBM is looking to expand its subscription-based software offerings to counter falling software sales. The systems segment was down thanks to a 20% decline in mainframe sales.

"The only clouds on the horizon relate to the continuing pressures on businesses related to political and economic challenges, such as the U.S./China trade snafu, Boris Johnson's Brexit bumbling and President Trump's likely impeachment", King said.

Ms. Rometty, for a considerable length of time, has been attempting to reevaluate IBM, with wagers on regions, for example, medicinal services innovation and man-made reasoning. The institutional investor held 98,985 shares of the computer manufacturing company at the end of 2019Q2, valued at $13.65M, up from 76,697 at the end of the previous reported quarter.

The GTS weakness generated longer-term concerns for Bernstein's Toni Sacconaghi as well. "There have been so many quarters that have shown a downward trend in revenue". IBM reiterated it sees full-year adjusted operating profit of $12.80 a share. "While we would prefer broader outperformance, if given the choice, we will take the one with the higher multiple (Red Hat)", he wrote, while lowering his price target to $170 from $175. The company continues to expect free cash flow of approximately $12 billion, with a realization rate over 100% of GAAP net income.

MoffettNathanson's Lisa Ellis highlighted the challenges of determining "clean" revenue growth for IBM after adjusting for Red Hat on a pro-forma basis, as well as IBM's recent divestitures, the mainframe cycle, and foreign-exchange effects.

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