IBM posts revenue drop on weak mainframe demand

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IBM posts revenue drop on weak mainframe demand

IBM reported a bigger-than-expected drop in first-quarter revenue this week, hurt by tapering demand for its mainframe computers and a stronger dollar, sending its shares down about three percent.

The technology giant’s revenue missed analyst estimates in all its main business units except cloud, which has been the centrepiece of its turnaround strategy.

IBM’s cloud and cognitive segment, which includes analytics, cybersecurity and artificial intelligence, fell 1.5 percent to US$5.04 billion in the quarter, but beat FactSet estimates of US$4.18 billion.

“We saw good acceleration in our cloud business... We now have an improving trajectory as we move forward,” chief financial officer Jim Kavanaugh said.

Under Ginni Rometty’s stewardship, the company has shed many of its traditional hardware businesses and beefed up the growth areas through deals such as its US$34 billion acquisition of Red Hat.

IBM returned to annual revenue growth in the last quarter of 2018, triggering expectations that its strategy was taking roots.

The company’s systems segment, which houses its mainframe computer business, fell 11.5 percent to US$1.33 billion in the reported quarter, missing FactSet estimates of US$1.37 billion.

Its overall revenue slipped 4.7 percent to US$18.18 billion in the first quarter ended March 31 and missed the average analyst estimate of US$18.46 billion, according to IBES data from Refinitiv.

Its net income fell to US$1.59 billion, or US$1.78 per share, in the quarter ended March 31 from US$1.68 billion, or US$1.81 per share, a year earlier.

Excluding special items, the company earned US$2.25 per share and beat analysts’ expectation of US$2.22 per share.

The company on Tuesday maintained its adjusted operating profit for 2019 to be “at least” US$13.90 per share. Analysts on an average were expecting US$13.91 per share.

Reporting by Sayanti Chakraborty in Bengaluru; Editing by Arun Koyyur

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