Cloud growth fuels IBM profit beat

Cloud growth fuels IBM profit beat

Storage business meanwhile falls by 20 per cent

Credit: Dreamstime

IBM beat analysts’ estimates for second-quarter profit this week, propped up by recurring growth in its high-margin cloud business.

The company is relying on its cloud business in the face of slowing growth in its legacy businesses, including mainframes and storage systems.

Last week, it wrapped up its US$34 billion acquisition of Linux maker Red Hat Inc, its biggest deal so far, to expand its subscription-based software offerings.

Revenue from cloud business, the faster-growing service and a key metric for the company, grew 5 per cent to US$4.8 billion during the quarter.

However, a stronger dollar dragged down its revenue by about $500 million. IBM makes over 60 per cent of its revenue from outside the United States.

IBM’s Global Technology Services unit, its biggest business by revenue that includes infrastructure, cloud and technology support services, reported a 6.7 per cent drop in revenue to US$6.84 billion, missing analysts’ estimates of $6.92 billion, according to three analysts polled by Refinitiv IBES.

The company’s systems business, which includes its mainframe servers and storage hardware, fell 19.5 per cent to US$1.75 billion.

Total revenue slipped 4.2 per cent to US$19.16 billion, in line with analysts’ estimates of $19.16 billion.

The decline in revenue could be attributed to weakness in the company’s legacy business of selling hardware, Chief Financial Officer James Kavanaugh told Reuters.

IBM said it remained on track to achieve adjusted earnings of at least US$13.90 for 2019, excluding the impact of Red Hat, in-line with analysts’ expectations.

The company added that it would provide an update on 2019 adjusted earnings, including impact from Red Hat on Aug 2.

The company’s net income rose to US$2.50 billion, or US$2.81 per share, in the second quarter ended June 30 from US$2.40 billion, or US$2.61 per share, a year earlier.

On an adjusted basis, the company earned US$3.17 per share, beating estimates of US$3.07.

Reporting by Sayanti Chakraborty in Bengaluru; Editing by Anil D'Silva

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