IBM’s Growth Comes at a Cost

23. January 2018

Date: 23-01-2018
Source: The Wall Street Journal

Aging tech giant’s revenue finally rises, but investments expected to curb earnings growth for year ahead

Even for IBM , growth doesn’t quite solve everything.

International Business Machines reported Thursday that fourth-quarter revenue rose nearly 4% year over year. Even adjusting for a boost from favorable currency rates, Big Blue’s top line managed its first period of growth in nearly six years. Strong sales of systems hardware business along with IBM’s growing cloud-computing service contributed to the uplift.

Still, IBM’s shares fell Friday, much like they have done following 10 of its last 12 quarterly reports. A bit of growth, as it turns out, isn’t quite enough to assuage concerns about how the company gets there. Fourth-quarter gross margins slipped below the 50% line for the first time in five years for what is typically the company’s strongest seasonal period. And, while IBM did project annual revenue growth for 2018, it is unclear if the company can do that without continued help from favorable exchange rates.

Given that IBM’s stock had jumped more than 15% since its last quarterly report, some disappointment was bound to set in. The company also expects a slight drop in free cash flow in 2018 due to increased capital spending in key segments to drive future growth. IBM did manage to close 2017 with a small gain in adjusted per-share earnings of $13.80 after three years of declines. But the company also projected flat earnings for 2018, given its need to invest more in its business.

Those investments have borne some fruit. The “strategic imperatives” IBM has been so focused on for the last few years accounted for 46% of total revenue for 2017, compared to 41% the year before. While encouraging, for an overall business that has been in steady decline for the last six years, investors are now willing to take only so much on faith.

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IBM Revenue Grows for the First Time Since 2012

19. January 2018

Date: 19-01-2018
Source: The Wall Street Journal

A $5.5 billion charge related to the new U.S. tax law pushes fourth-quarter results into the red

International Business Machines Corp. reported higher revenue for the first time in 23 quarters and signaled continued growth into 2018, giving Chief Executive Ginni Rometty breathing space as she tries to turn around the century-old tech giant.

Fourth-quarter revenue rose 3.6% to $22.54 billion. The last time IBM had revenue growth from the prior year was the first quarter of 2012, Ms. Rometty’s first as chief.

Several factors drove growth in the latest quarter: sales of industrial-strength computers—which the company typically refreshes every few years— rose 32% to $3.33 billion, while cloud-computing revenue climbed 30% to $5.5 billion. Also, currency exchange rates have been working in IBM’s favor lately, accounting for 3 percentage points of the quarter’s revenue growth after years of being a headwind.

IBM said it took a $5.5 billion charge related to the new U.S. tax law, helping to push it into the red for the period. Its tax rate, excluding the charge but including certain one-time benefits, was 6%.

In all, the company reported a fourth-quarter loss of $1.05 billion, or $1.14 a share, compared with profit of $4.5 billion, or $4.72 a share, a year earlier. Read the rest of this entry »