IBM beats Financial Results after 22 Quarters of Declining Revenue

IBM Corp. (NYSE: IBM) reported its fourth quarter financial results, but despite reporting revenue growth for the first time in over 22 quarter, shares fell by 3.9 percent on Friday.

For the fourth quarter, IBM reported an adjusted EPS of $5.18, increasing 3 percent year over year, and beating Thomson Reuters analysts’ estimates of $5.17. IBM reported revenue of $22.5 billion, up 4 percent year over year, and beating Thomson Reuters analysts’ estimates of $22.06 billion.

IBM’s cloud revenue for the full year was up 24 percent year over year to $17 billion. Full-year strategic imperatives revenue was up 11 percent year over year to $36.5 billion, representing 46 percent of IBM’s revenue. Security revenue shot up 132 percent year over year.

IBM also took a one time charge of $5.5 billion due to the new tax reform that slashed corporate tax rates from 35 percent to 21 percent.

Cognitive solutions revenue grew 3 percent, Global Business Services grew 1 percent, Technology Services and Cloud Platforms grew 1 percent, Systems grew 32 percent, and Global financing grew 1 percent year over year.

"Over the past several years we have invested aggressively in technology and our people to reposition IBM,” said James Kavanaugh, IBM senior vice president and chief financial officer.

“During 2017, we strengthened our position as the leading enterprise cloud provider and established IBM as the blockchain leader for business.” said Ginni Rometty, IBM chairman, president and chief executive officer.

Despite steady growth throughout the year for IBM’s business segments, Wall Street analysts were not impressed with the growth rate, saying that IBM will need more time to steadily get back on track.

“While slight growth is a modest positive, we were largely underwhelmed by IBM’s results, and felt the numbers showed IBM has much more work to do to turn the ship around,” Deutsche Bank analyst Sherri Scribner wrote in a client note.

IBM began to shift away from the hardware and software business segment as it began to transition itself towards cloud services, analytics, and its security services. All three of these segments showed strong growth year over year, which IBM calls it is strategic imperative.

Although, the primary driver of revenue for the fourth quarter was due to IBM’s 71 percent jump in sales for the Z14 mainframe. Analysts have pointed out that the direction of sales usually shifts every 2-4 months for mainframe sales, but they are saying IBM may have a different direction, according to Reuters.

"2018 will be all about reinforcing IBM's leadership position in key high-value segments of the IT industry, including cloud, AI, security and blockchain." said Kavanaugh.

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