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IBM beats revenue estimates; hints at sales growth

© Reuters. FILE PHOTO: The logo of Dow Jones Industrial Average stock market index listed company IBM (IBM) is seen in Los Angeles© Reuters. FILE PHOTO: The logo of Dow Jones Industrial Average stock market index listed company IBM (IBM) is seen in Los Angeles

By Pushkala A and Laharee Chatterjee

(Reuters) – International Business Machines Corp’s (N:IBM) shift to newer businesses such as cloud and security services helped it beat analysts’ quarterly revenue estimates, and the technology major hinted at sales growth after nearly six years of declines.

Shares of the Dow component rose nearly 5.1 percent to $153.93 in extended trading on Tuesday.

IBM has been focusing on cloud, cybersecurity and data analytics, or what the company calls its “strategic imperatives”, to counter a slowdown in its legacy hardware and software businesses.

Revenue from these businesses climbed 11 percent to $8.8 billion in the third quarter ended Sept. 30, accounting for about 46 percent of the company’s total revenue.

“Management is focused in the right areas, but still have some work and must demonstrate this growth is sustainable,” said Josh Olson, an analyst at Edward Jones.

Revenue from the cognitive solutions business, which includes the AI-powered supercomputer Watson, rose nearly 4 percent to $4.40 billion, after falling 2.5 percent in the previous quarter.

Analysts on average expected revenue of $4.17 billion, according to financial data and analytics firm FactSet.

IBM said it expected revenue to grow $2.8 billion to $2.9 billion in fourth quarter from the third quarter.

This implies fourth-quarter revenue in the range of $22 billion to $22.1 billion, a year-on-year growth of about 1.4 percent at the high end.

A part of the rise in revenue is expected to come from the mainframe business, which got a boost from the launch of Z14.

Revenue in mainframe business jumped 60 percent in the third quarter, Chief Financial Officer Martin Schroeter told Reuters, adding that the business gained from Z14, which began shipping in mid-September.

“The progress around the mainframe contribution, signings growth/visibility in consulting and positive trends in cloud likely sets up for further momentum in Q4,” said David Holt, an analyst with CFRA.

IBM backed its forecast for 2017 adjusted earnings of at least $13.80 per share. Analysts on average are expecting earnings of $13.75 per share, according to Thomson Reuters I/B/E/S.

Total revenue fell 0.4 percent to $19.15 billion, but handily beat analysts’ estimates of $18.60 billion.

The company’s net income fell to $2.73 billion, or $2.92 per share, in the third quarter, from $2.85 billion, or $2.98 per share, a year earlier.

Excluding one-time items, IBM earned $3.30 per share, beating analysts’ estimates of $3.28.

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