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IBM answers some doubters with revenue growth, cloud sales

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Revenue gained 2 per cent, adjusted for currency fluctuations, to US$20 billion in the second quarter, International Business Machines Corp said Wednesday in a statement.

[NEW YORK] IBM may have won back some investors' trust after posting renewed sales growth and saying its cloud business is performing well.

Revenue gained 2 per cent, adjusted for currency fluctuations, to US$20 billion in the second quarter, International Business Machines Corp said Wednesday in a statement. Analysts estimated US$19.9 billion. Profit, excluding some items, was US$3.08 a share, compared with analysts' projections of US$3.04 a share.

Still, profit margins are stagnating and the Armonk, New York-based company saw a slight sales decline in the unit that includes its Watson artificial intelligence business. Shares gained about 2 per cent in early trading Thursday after closing at US$144.52 in New York.

While revenue has declined for most of the past five years, IBM has been asking investors to focus on what it calls strategic imperatives - a collection of newer businesses like cloud computing, AI and security software. The cloud business grew 18 per cent, adjusting for currency changes, to US$4.7 billion in the quarter. That's an improvement from the disappointing 14 per cent IBM posted earlier this year. Strategic imperatives, as a whole, generated US$10.1 billion in the period, bringing the company closer to its goal of US$40 billion in revenue from the category by year-end.

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IBM's results "build hope that IBM's transformation is playing out," yielding strong hardware results and faster growth in cloud services, Morgan Stanley analyst Katy Huberty wrote in a note. She rates the stock a buy.

In April, investors sent the stock tumbling the most in two years after first-quarter growth in the cloud business slowed and margins across the company narrowed.

Cognitive solutions, which includes the much-advertised Watson AI line of businesses, generated revenue of $4.6 billion in the period. Adjusting for currency changes, that means it declined 1 per cent year over year. Adjusted profit margins, another key measure for investors, narrowed to 46.5 per cent.

Revenue from cognitive solutions fell because much of the unit is related to transaction software, which is a declining business, Kavanaugh said. Watson is actually growing, he said, though the company doesn't break out its revenue.

Net income in the recent period was US$2.4 billion, or US$2.61 a share, from US$2.33 billion, or US$2.48 a share, a year earlier, the company said.

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