April 20, 2015 by Bill Johnson
IBM IBM +3.42% missed on revenue for its eighth of nine quarters in a row on Mon. as it reported Q1 2015 financial results, though earnings again beat Wall St. consensus.
Big Blue reported revenue of $19.6 billion for the quarter, $100 million less than analysts had predicted and down 12% year-to-year. The company cleared expectations for earnings by ten cents a share, reporting $2.91 against a consensus of $2.81, a 9% improvement from last year. The company also reported non-GAAP net income growth of $2.9 billion, a 4% bump.
The results didn’t shock traders, as shares of IBM, which had been up $5.49 during trading hours, or 3.42%, were about flat in after-hours trading, first down $0.32, or about 0.19%, as of 4:35pm ET and then swinging up $0.54, or 0.32%, as of 5pm ET.
IBM’s software business continued to bleed revenue, bringing in $5.2 billion, 8% less year-to-year and more than the 7% decrease of one quarter ago. But IBM said that its cloud business, so critical to CEO Ginni Rometty’s eventual plan to turn around the company, brought in 60% more revenue than a year ago with cloud as a service bringing in $3.8 billion in revenue. Another key hope for growth, business analytics, bumped up 12%. “In the first quarter we had a strong start to the year,” Rometty wrote in the company’s earnings release.
IBM’s hardware business, one that it’s been stripping of key pieces in recent months such as through the sale of its System x business to Lenovo for $2.3 billion, actually jumped 30% in revenue if not for currencies. Overall it was down 23% when the loss of that unit’s revenue and currencies were factored in. The company kept the same amount of services backlog on the books as a year ago adjusting for the currency headwinds and its divested businesses, and kept the same outlook for the full year 2015. It had lowered those expectations last quarter, helping send its stock price on a tumble at the time.
“The results for this quarter represent a transformation in our business,” CFO Martin Schroeter said on an analyst call on Mon. after the earnings release.
Analysts like Toni Sacconaghi at Bernstein Research had predicted the “ugly” double-digit revenue decrease for the company, driven by currency exchanges and some of the company’s sales of business units. “We see no near term catalysts for the stock,” he wrote in a note last week. On the analysts call, Schroeter attributed the revenue drop largely to those headwinds as well as several divestitures of low-growth businesses the company claims will improve its outlook in the longterm, especially in its profit margins.
Much of the revenue woes were due to a particularly difficult foreign currency market as the U.S. dollar strengthened. That had led some analysts to focus more on IBM’s individual business units. “There’s the risk that the level of complexity actually reduces and there’s no need or less need for IBM’s services, hardware and software,” Morningstar MORN +1.54% analyst Peter Wahlstrom had told CNBC ahead of earnings.
Like other analysts, Sacconaghi at Bernstein had warned of macro trends limiting IBM’s business as customers move to the cloud, where IBM has invested billions but is still late to the table. And much of IBM’s revenue still comes from services through outsourcing, a business analysts see as one with limited remaining opportunity. The results were more of the same for IBM, which has gotten used to mixed- to negative results and Wall St. restlessness in the last several years. Against flat currencies, IBM claimed a positive quarter, but the growth of its strategic initiatives have a long way to go in influencing the company’s overall results.