International Business Machines Corp. (NYSE: IBM) has posted better than expected results in the third quarter of FY 17 due to the strong cloud computing growth. However, IBM has reported declines in quarterly profit and sales in the third quarter, which is a sign that the company’s drawn-out transformation still has a way to go. The newer businesses such as cloud computing and the Watson artificial intelligence platform, called strategic imperatives by IBM, has grown 10% over the past 12 months and accounts for 45% of the company’s revenue. Cloud revenue has grown 25% in the past 12 months. Overall, the profit fell 4.5% to $2.73 billion. The margins have narrowed overall and in most business units, though progressively less since the beginning of the year, which is a hopeful sign of stabilization.
IBM in the third quarter of FY 17 has reported the adjusted earnings per share of $3.30, beating the analysts’ estimates for the adjusted earnings per share of $3.28. The company had reported 0.4 percent fall in the adjusted revenue to $19.15 billion in the third quarter of FY 17, beating the analysts’ estimates for revenue of $18.63 billion.
Meanwhile, IBM is trying to transition from older, shrinking businesses, such as building and maintaining technology on customers’ premises, to higher-growth operations like delivering pay-as-you-go services over the internet. The company has placed big bets on emerging technologies, such as artificial intelligence and blockchain that is the networked ledger at the heart of bitcoin digital currency. Further, IBM has been focusing on cloud, cybersecurity and data analytics, or that the company calls its “strategic imperatives”, to counter a slowdown in its legacy hardware and software businesses.
For the full year 2017, IBM expects earnings per share of at least $13.80, which would beat Wall Street’s consensus view of $13.75. IBM expects the revenue to grow $2.8 billion to $2.9 billion in fourth quarter from the third quarter. This implies fourth-quarter revenue will be in the range of $22 billion to $22.1 billion, a year-on-year growth of about 1.4 percent 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.
IBM stock has fallen 5.12% in a year (source: Google Finance).