IBM CEO Ginni Rometty
On the (tiny) rebound: IBM’s shares rose by around 5% on January 21 after it said its fourth-quarter revenues had increased by 0.1%, to $21.8 billion, after five quarters in a row of year-over-year sales declines.
Big Blue’s fortunes were boosted by a new mainframe product line and revenues from open-source software giant Red Hat, which it acquired in July 2019 for around $34 billion. Adjusted net income for the quarter fell about 5%, to $4.2 billion, while the company reported earnings per share of $4.71 compared with analysts’ consensus estimates of $4.69. IBM saw its full-year 2019 revenue fall 3.1%, to $77.1 billion, and its net income drop by 10%, to $11.4 billion.
Mini mainframes: Although computing has been steadily shifting to the cloud—a trend IBM was initially slow to embrace—companies are still buying mainframes for a range of processing tasks. IBM’s systems segment revenue grew 16% in its latest quarter, to $3 billion, thanks largely to the success of the IBM Z mainframe, which has a smaller space footprint than previous machines. Over the past few months the company has been shipping a new mainframe model, the z15.
Big Blue’s Red bet: IBM’s latest quarterly numbers also include revenues from Red Hat, which it initially bid for in 2018. It swept up Red Hat, which provides support and training services for open-source code, because it believes such code will be a key pillar of a hybrid computing future in which companies both buy cloud-computing services and continue to run their own “on-premise” systems.
That bet may already be starting to pay off. Revenue from IBM’s cloud and cognitive software business, which includes Red Hat, rose 8.7% in the latest quarter, to $7.2 billion. Adjusted revenue from Red Hat itself grew by 24%.
Fixer-downer: IBM is still struggling to fix its Global Technology Services business, which includes infrastructure and some cloud services. This segment saw revenue fall 5% in the quarter, to $6.95 billion. James Kavanaugh, IBM’s CFO, said IBM would take “aggressive structural actions” to reposition the business over the next few months, though he didn’t reveal just how far-reaching these would be.
False dawn? Big Blue’s clearly feeling more bullish about the future. Reviewing its latest results, CEO Ginni Rometty claimed IBM is now positioned for “sustained growth” and the company forecast earnings per share of at least $13.35 for this year, up from $12.81 in 2019. While some analysts share Rometty’s optimism, others are more circumspect. In a research note published last week, Morgan Stanley warned IT budgets could grow more slowly this year and that could hurt various IBM businesses, including outsourcing services and on-premise infrastructure.