Published: Fri, January 24, 2020
Electronics | By Kelly Massey

IBM forecasts profit above estimates on cloud growth

IBM forecasts profit above estimates on cloud growth

International Business Machines on Tuesday reported a surprise rise in revenue, its first in six quarters, benefiting from its high-margin cloud computing business.

The New York tech conglomerate's $34 billion Red Hat acquisition is being billed as a massive success - revenues soared just months after IBM's deal to buy the software company out.

The increase stemmed from IBM's acquisition of Red Hat, which it completed in the third quarter last year, helping boost the cloud and cognitive software division 8.7 per cent from a year earlier.

"We ended with a strong note in 2019 and returned to total revenue growth in the quarter, driven by accelerated cloud performance", said IBM CEO Ginni Rometty.

The global technology services segment, which caters to some of the world's largest data centers, reported $6.9 billion of revenue, down 4.8% from the previous year. Analysts expected earnings of $ 4.68 per share on sales of $ 21.64 billion.

Rometty also said: 'Looking ahead, this positions us for sustained revenue growth in 2020 as we continue to help our clients shift their mission-critical workloads to the hybrid cloud and scale their efforts to become a cognitive enterprise'.

Sales were US$21.8 billion in the quarter, up nearly 0.1 per cent from the same period a year earlier, the Armonk, New York-based company said in a statement Tuesday.

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Net cash from operating activities was $14.8bn for the year, and free cash flow came in at $11.9bn. Wall Street had forecast US$21.6 billion.

IBM's Cloud and Data Platforms sub-segment, which includes Red Hat, grew revenues by 20 per cent.

As for the outlook, IBM said it is on track to deliver non-GAAP earnings of at least $13.35 a share with free cash flow of about $12.5 billion for fiscal 2020. The Global Business Services segment, which encompasses application development and cloud migration, was flat, while revenue declined 4% in Global Technology Services.

IBM's share price is up almost four percent since the start of the year, and is now trading at a three-month high of US$139.17. IBM briefly halted that slide in 2017 and 2018, only for quarterly revenue to fall again. While you might get some minor price target hikes after this report, does it really do enough to really change the narrative?

A number of brokerages have recently issued reports on IBM.

He adds that the company's key earning drivers are the RedHat accretion, continued growth in core IBM, and lower interest expense as debt levels improve. BMO Capital Markets cut their price objective on shares of IBM from $157.00 to $152.00 and set a "market perform" rating on the stock in a research report on Thursday, October 17th.

Global Financing (includes financing and used equipment sales) - revenues of $301 million, down 25.3 percent (down 24.9 percent adjusting for currency); revenue reflects the wind-down of OEM commercial financing.

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