Technology

Market Hammers IBM on Muddled Earnings

Douglas A. McIntyre

Published: April 18, 2016 4:28 pm

Last Updated: January 13, 2020 10:38 am

UPDATE: IBM shares sold off 4.94% after hours.

International Business Machines Corp. (NYSE: IBM) posted modest earnings per share (EPS) of $2.09, which was in line with the Wall Street consensus. The figure was down from $2.35 in the same period a year ago. Revenue fell from $19.6 billion to $18.7 billion, which was slightly better than consensus. Traders were indifferent immediately after the figures were announced, as shares barely moved from their $152.53 close.

Management’s comments about results were murky, as usual, and the financials were difficult to untangle. Ginni Rometty, IBM chairman, president and chief executive officer, said:

We are pleased with the progress we have made helping our clients apply new cognitive solutions and hybrid cloud platforms. IBM has established itself as the industry leader in total cloud, analytics and cognitive, all of which helped drive our strategic imperatives revenue growth at a strong double-digit rate, substantially faster than the market.

In comments about what IBM calls “Strategic Imperatives,” management reported:

First-quarter revenues from the company’s strategic imperatives — cloud, analytics and engagement — increased 14 percent year to year (up 17 percent adjusting for currency). Total cloud revenues (public, private and hybrid) for the quarter increased 34 percent (up 36 percent adjusting for currency). Cloud revenue over the trailing 12 months was $10.8 billion. The annual exit run rate for cloud delivered as a service — a subset of the total cloud revenue — increased to $5.4 billion from $3.8 billion in the first quarter of 2015. Revenues from analytics increased 7 percent (up 9 percent adjusting for currency). Revenues from mobile increased 88 percent (up 93 percent adjusting for currency) and from security increased 18 percent (up 20 percent adjusting for currency).

However, the division that includes cloud services appeared to falter:

Technology Services and Cloud Platforms (includes infrastructure services, technical support services, integration software) — revenues of $8.4 billion, down 1.5 percent, up 1.9 percent adjusting for currency. Growth of 41 percent (45 percent adjusting for currency) in strategic imperatives revenue within the segment was driven by hybrid cloud infrastructure engagements.

It will take until at least next quarter for investors to have any conviction about IBM’s direction.