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IBM beats revenue estimates; hints at sales growth

[BENGALURU] International Business Machines (IBM) Corp's shift to newer businesses such as cloud and security services helped it beat analysts' quarterly revenue estimates, and the technology major hinted at sales growth after nearly six years of declines.

Shares of the Dow component rose nearly 5.1 per cent to US$153.93 in extended trading on Tuesday.

IBM has been focusing on cloud, cybersecurity and data analytics, or what the company calls its "strategic imperatives", to counter a slowdown in its legacy hardware and software businesses.

Revenue from these businesses climbed 11 per cent to US$8.8 billion in the third quarter ended Sept 30, accounting for about 46 per cent of the company's total revenue.

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"Management is focused in the right areas, but still have some work and must demonstrate this growth is sustainable," said Josh Olson, an analyst at Edward Jones.

Revenue from the cognitive solutions business, which includes the AI-powered supercomputer Watson, rose nearly 4 per cent to US$4.4 billion, after falling 2.5 per cent in the previous quarter.

Analysts on average expected revenue of US$4.17 billion, according to financial data and analytics firm FactSet.

IBM said it expected revenue to grow US$2.8 billion to US$2.9 billion in fourth quarter from the third quarter.

This implies fourth-quarter revenue in the range of US$22 billion to US$22.1 billion, a year-on-year growth of about 1.4 per cent at the high end.

A part of the rise in revenue is expected to come from the mainframe business, which got a boost from the launch of z14.

Revenue in mainframe business jumped 60 per cent in the third quarter, chief financial officer Martin Schroeter told Reuters, adding that the business gained from z14, which began shipping in mid-September.

"The progress around the mainframe contribution, signings growth/visibility in consulting and positive trends in cloud likely sets up for further momentum in Q4," said David Holt, an analyst with CFRA.

IBM backed its forecast for 2017 adjusted earnings of at least US$13.80 per share. Analysts on average are expecting earnings of US$13.75 per share, according to Thomson Reuters I/B/E/S.

Total revenue fell 0.4 per cent to US$19.15 billion, but handily beat analysts' estimates of US$18.6 billion.

The company's net income fell to US$2.73 billion, or US$2.92 per share, in the third quarter, from US$2.85 billion, or US$2.98 per share, a year earlier.

Excluding one-time items, IBM earned US$3.30 per share, beating analysts' estimates of US$3.28.

REUTERS