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International Business Machines Corp. recorded the largest decline in six months after recording a decline in revenue from the cloud computing, artificial intelligence and cognitive software unit on which the company is currently projecting itself.
IBM announced a 2% decline in cloud and cognitive software sales to $ 5.0 billion for the quarter ended March 31. The single cloud business figure has increased by 10% in the last 12 months, but at a slower pace than in the previous quarter. Revenues from all IBM divisions have either declined or changed little, according to a company statement released Tuesday. Shares fell 6% to 136.26 dollars on Wednesday morning. It was their biggest intraday decline since October.
Chief Financial Officer Jim Kavanaugh said the slowdown in cloud growth was based on a depreciation of the US dollar. Excluding the currency wind, cloud revenue grew by 12% in the quarter to $ 4.5 billion, double the pace of the previous period, a year earlier. Kavanaugh said in an interview.
Last October, IBM spent $ 33 billion on the purchase of Red Hat, to help it catapult into the ranks of leading cloud software providers. This is the largest contract in IBM's 108-year history and the second largest technology acquisition in the world. The transaction is expected to be finalized later this year, but investors were looking for signs that it was already starting to pay off and help revive IBM's trajectory.
"The stock market is concerned with the core business and what Red Hat will do to change the story," said Stifel analyst David Grossman in an interview.
IBM has lagged behind the entire technology industry for years. In 2018, its turnover grew in sales, which corresponds to a six-year drop in sales. Analysts expect the slight reprieve to be short-lived, with annual revenues estimated at $ 77.8 billion by the end of the year – the lowest since the late 1990s.
Total revenues for the first quarter were $ 18.2 billion, down 4.7% from the same period last year and above the average analyst forecast of $ 18.4 billion. . Adjusted earnings per share was $ 2.25 for the period. Analysts projected $ 2.22.
CEO Ginni Rometty is injecting resources into the hybrid cloud, allowing companies to distribute their data between private and public cloud providers, such as Amazon.com Inc.'s AWS and Microsoft Corp.'s Azure. It's a competitive market, but Rometty is determined. "The hybrid cloud is a multi-billion dollar market and we will be the number one," Rometty told IBM's Think conference in February. She paid a hefty premium to Red Hat because of her dominance in the hybrid cloud architecture.
Josh Olson, a technology analyst at Edward Jones, said he still had reservations about IBM's growth prospects, even with Red Hat under his responsibility. "IBM's acquisition of Red Hat Software, while strategic, involves significant integration risk and high cost that can be difficult to justify," Olson wrote in a recent note. IBM will need to see "significant revenue and cost benefits" to rationalize the high price paid by Rometty, he wrote in a note before the results were released.
Last quarter, IBM announced its first results since the announcement of the Red Hat deal and its shares have seen the largest increase in 10 years, while the company gave positive forecasts for 2019 and the fourth quarter results were higher than analysts' estimates. For the full year, adjusted earnings per share of IBM is at least $ 13.90, the statement said.
This quarter, IBM restructured its business and introduced a new segment called Cloud and Cognitive Software in anticipation of the closing of the acquisition of Red Hat. This segment includes data and cloud platforms, cognitive applications and its artificial intelligence unit, Watson.
The company's consulting services – a combination of Global Business Services and Global Technology Services – generated a total of $ 11 billion, or approximately 60% of IBM's total revenue.
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