IBM Is Still Not Reaping Rewards from its Big Bets

Apr 18, 2017

IBM's struggle to reverse a long sales slide continued in its latest quarter with the tech giant saying on Tuesday that revenue fell 2.8%.

The decline to $18.16 billion in the company's first quarter from $18.68 billion in the same period last year marked the 20th consecutive quarter of falling sales. The amount fell short of the $18.39 billion that analysts had expected, sending company's shares skidding 4.2% at one point in after hours trading to $162.90.

As has become its custom, IBM (ibm) stressed that revenue from its "strategic imperatives"—cloud, mobile, data crunching, and mobile—rose 13% to $7.8 billion for the period. For full year 2016, these key categories made up 40% of the company's revenue, IBM chief executive Ginny Rometty said in January.

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IBM chief financial officer Martin Schroeter took to CNBC Tuesday afternoon to say he expects IBM to turn the corner. "I am confident that the IBM company will grow again," he said. "We're taking time to make sure we invest in the right places and make sure we get the kind of margin high-value profile we're looking for."

The overriding question is when that will happen given the booming growth of rivals like Amazon Web Services, Amazon's business unit that rents computing and storage to corporate customers.

One big issue continues to be that growth in these newer areas has not offset declining sales in its older businesses. Rometty has been trying to shift focus to growing areas by investing heavily in them while continuing to manage the company's older businesses and by cutting costs.

For the quarter ending at the end of March, IBM said cloud revenue was up 33% to $3.5 billion and that the company had $14.6 billion in cloud revenue over the past 12-months. But cloud numbers are hard to pin down because older tech companies often lump in revenue from businesses that aren't necessarily associated with cloud computing.

With IBM, cloud revenue is what matters most to analysts because it's where businesses customers are increasingly headed. Amazon, Microsoft (msft), are the biggest recipients of those dollars as corporations shift from building their own data centers.

For the first quarter, revenue from IBM hardware and operating systems fell 16.8% to $1.4 billion. Meanwhile, revenues at IBM's consulting arm fell 3% to $4 billion, although cloud-related consulting and services within that group grew in the "double digits," IBM said without providing additional details.

IBM beat consensus estimates on profit logging $2.38 per share, excluding some costs, while FactSet analysts were anticipating $2.35 per share.

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