One of IBM's latest financial figures was off by four cents today – so down go its shares

Oh, yeah, and storage sales sucked. There's that, too

An IBM office

Revenues for IBM have risen for its second successive financial quarter – after more than five years of declining sales – but only on a constant currency basis. Profit, however, dropped and Wall Street hammered Big Blue's stock price in after-hours trading.

The venerable tech titan reported $19.1bn in global sales in the first quarter of 2018 – up 5 per cent on this time last year, but flat when those sales were converted from local currencies into US dollars. The topline number was down on the $22.54bn IBM generated in the previous three months.

All of IBM's business units saw sales growth in constant currency but it was cloud that was the standout, seeing revenues rise by 20 per cent year-on-year.

"In the first quarter we maintained momentum in our business, with reported revenue growth in total and across our major segments," said Ginni Rometty, IBM chairman, president and CEO in a canned statement.

"These results reinforce that our clients value our innovative technologies, our industry expertise and our commitment and actions for the responsible stewardship of their privacy and data. This is also reflected in our leadership positions in enterprise cloud, AI and security."

Here's a summary of IBM's figures for the three months to March 31, published today:

  • Net income: IBM did make a profit for the quarter, $1.7bn to be exact, but that was still down four per cent on this time last year – although better than the previous quarter's $1.1bn loss, which included a large tax write off. Still, analysts had expected more, and that could have helped sour Wall Street's mood today.
  • Earnings per share (GAAP): EPS was $1.81, down two per cent, year on year. Non-GAAP EPS was $2.45, up four per cent, which beat analyst estimates by $0.06. IBM is trying to hit $13.80 non-GAAP EPS for this year; analysts are hoping for $13.84. That four-cent difference is, in part, causing the IT corp's share price to fall right now.
  • Strategic Imperatives: This division – which covers stuff like cloud, mobile and big data – pulled in $9bn in revenues for the quarter, and accounted for nearly half of all sales. That figure is up 15 per cent on the year, but if you factor in currency, that drops to 10 per cent growth.
  • Cloud revenues: Cloud was Big Blue's star performing group, with revenues jumping 20 per cent to $4.2bn.
  • Cognitive Solutions: The AI-ish division that's still trying to make Watson good for something had a pretty healthy quarter. Analytics revenues rose 9 per cent, mobile was up 19 per cent, and security sales rocketed 65 per cent for the quarter. The whole division's sales were up six per cent, year on year, to $4.3bn.
  • Systems revenue: The initial burst of sales from System Z and Power Systems sales had dropped off but systems sales still showed year-on-year growth with revenues of $1.5bn, up 8 per cent. That said, margins dropped slightly to 43.7 per cent. Storage was the black sheep of the group, with sales described as disappointing.
  • Global Business Services: Revenues grew 4 per cent with revenues of $4.2bn. Here cloud consultancy practice showed double-digit growth.
  • Technology Services and Cloud Platforms: Overall sales grew to $8.6bn, up 5 per cent over this time last year. Hybrid cloud services and security helped grow this sector.

There were some dark clouds on the horizon. In a conference call with analysts today, IBM's chief financial officer James Kavanaugh said that a significant expense is being swallowed in this quarter, namely "worker transformation" – which is what Big Blue calls layoffs. He said such moves had caused the company "six points of expense growth."

In a note to investors earlier this month, Daniel Chen, of analyst house Bernstein, explained: "IBM often takes a large restructuring charge in Q1. Over the past five years, management has taken an average Q1 restructuring charge of $556m. IBM has stated that it expects to continue this tradition with a restructuring charge that could offset the majority of its significant windfall from discrete tax benefits in Q1 2018. While management has a lot of discretion as to how much restructuring it ultimately books, we estimate that total restructuring charges could amount to ~$650M in Q1."

There was also a lot of blame pointed at the storage side of IBM. Kavanaugh told analysts: "Our storage hardware revenue declined this quarter. We were disappointed in our storage performance, and it contributed to a modest shortfall to our own expectations of IBM's revenue growth in the quarter."

Overall, Wall Street didn’t take the figures well. In after-hours trading, the stock fell six per cent at time of publication, and may fall further. ®




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