IBM predicts strong earnings despite revenue fall

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IBM predicts strong earnings despite revenue fall

IBM has reported its 19th straight quarter of declining revenue, but forecast full-year earnings above Wall Street estimates due to growth in cloud-based services and analytics.

However, investments to drive growth in the cloud business and the company's shift to a subscription-based as-a-service model hit its operating gross margin by 1.8 percentage points to 51 percent in the fourth quarter.

IBM's shares were down 2.5 percent at US$162.70 after rising briefly in extended trading.

CFRA Research analyst David Holt said the company's results still raised questions as to when revenue would grow.

"The 800-pound gorilla in the room is the overall inflection point towards revenue growth. That's the moving target," Holt said.

IBM forecast adjusted earnings of at least US$13.80 per share for fiscal 2017, beating the average analyst estimate of US$13.74, according to Thomson Reuters I/B/E/S.

Chief executive Gini Rometty's transition efforts have shown revenue growth across some areas in recent quarters, with newer businesses driving the efforts.

Rometty has also been supportive of President-elect Donald Trump's tax reform proposal. The proposal would allow companies in the United States to reinvest in training and educational programs for their employees, Rometty wrote in a letter to Trump in November.

"When you have an administration that is pro-export ... we can see a benefit from that, and if we get fundamental tax reform, that could, on balance, help us as well," chief financial officer Martin Schroeter told Reuters on Thursday.

Revenue from "strategic imperatives", which includes cloud and mobile computing, data analytics, social and security software, rose 11 percent to US$9.5 billion in the fourth quarter, from a year earlier. It contributed 41 percent to IBM's total revenue in 2016.

Cloud computing revenue across IBM's segments rose 33 percent. The business includes services such as SoftLayer, which leases online storage space to companies, as well as the BlueMix cloud platform.

Excluding items, IBM earned US$5.01 per share, beating analysts' average estimate of US$4.88 per share.

The company's revenue fell 1.3 percent to US$21.77 billion in the quarter ended 31 December, but beat analysts' expectations of US$21.64 billion.

Net income rose to US$4.50 billion, or US$4.72 per share, from US$4.46 billion, or US$4.59 per share, helped partly by a lower tax rate.

IBM's shares rose 30.2 percent in the last 12 months, outperforming the 23.2 percent gain in the broader Dow Jones Industrial Average.


(Reporting by Narottam Medhora in Bengaluru; Editing by Maju Samuel)

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