IBM shares jump on strong profit, outlook

January 23, 2019 08:36
IBM has been shifting toward the faster-growing segments such as cloud, software and services to lower dependence on its traditional hardware products . Photo: Reuters

IBM Corp. beat analysts’ fourth-quarter earnings estimates and forecast full-year profit above expectations, sending its shares up about 7 percent, Reuters reports.

The company has been shifting toward the faster-growing segments such as cloud, software and services to lower dependence on its traditional hardware products and reverse years of revenue declines. 

“We had our strongest signings quarter to finish out the year in a long period of time, where we signed roughly US$16 billion worth of signings – that’s up 21 percent,” chief financial officer James Kavanaugh told the news agency.

“We had 16 deals greater than US$100 million which talks to value of our hybrid cloud, multi-cloud value proposition,” he said.

IBM has been structuring its cloud strategy around helping companies stitch together their multiple cloud platforms, according to analysts, aiming not to compete head-to-head with “hyperscale” cloud providers such as Amazon Web Services, Microsoft Azure and Alphabet Inc.’s Google. 

The company recently signed multiple cloud services contracts, including with British telecom operator Vodafone Plc and French bank BNP Paribas 

Cloud business, part of what IBM refers to as “strategic imperatives”, grew 12 percent to US$19.2 billion in 2018.

Underscoring the push into cloud, IBM in October agreed to buy Red Hat Inc. for US$34 billion and is also shedding some of its businesses. 

The company forecast adjusted operating earnings for 2019 to be “at least” US$13.90 per share, while analysts on average were expecting US$13.79, according to IBES data from Refinitiv. 

However, IBM guided 2019 free cash flow below analysts’ expectation. The company expects free cash flow of about US$12 billion for the year, compared with expectations of US$12.67 billion. 

It said revenue slipped to US$21.76 billion in the three months to Dec. 31, but came in above analysts’ average estimate of US$21.71 billion. 

Throughout the year, the strengthening of the US dollar cost over US$2 billion of revenue in 2018, Kavanaugh said.

The Armonk, New York-based technology services giant makes over 60 percent of its revenue from outside the United States.

The company’s cognitive software business, which houses artificial intelligence platform Watson, analytics and cybersecurity services, reported sales of US$5.46 billion, compared with analysts’ expectation of US$5.25 billion. 

IBM’s revenue of US$4.32 billion from its global businesses services segment also beat estimates of $4.15 billion. 

Excluding special items, the company earned US$4.87 per share, above expectations of US$4.82.

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