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IBM Shares Surge On Higher Revenue Outlook For Fourth Quarter

Shares of computer giant IBM (IBM) soared Wednesday on third-quarter earnings that still showed declining revenue but the tech icon offered an outlook for the current period that predicts sales growth for the first time in more than five years.

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IBM reported revenue of $19.15 billion, ahead of analyst views for $18.6 billion. It reported adjusted earnings of $3.30 per share, beating the consensus estimate of $3.28. Revenue of $19.15 billion was slightly below the $19.2 billion reported in the year-ago quarter, marking the 22nd quarter in a row of declining revenue as IBM undergoes a major transition.

Although IBM does not provide formal quarterly guidance, management indicated that the fourth quarter should rise, on a sequential basis, by about $2.8 billion. That suggests IBM will report fourth-quarter revenue above $22 billion, compared with the $21.77 billion for the same period a year ago, snapping the 22-quarter string.

"Last year, we increased revenue by $2.5 billion from third to fourth quarter," said Martin Schroeter, IBM chief financial officer, in the earnings conference call. "This year we'd expect stronger sequential performance — due in part to the mainframe cycle — so perhaps three to four hundred million more, and of course that quarter to quarter will depend on currency too."

IBM shares surged by as much as 8% in early trading, going above 158 to levels not seen since May, on the stock market today.

IBM is dumping old business lines and building out new ones in the areas of artificial intelligence and business analytics, cloud computing, cybersecurity, mobile platforms and more. IBM collectively refers to the new business operations as "strategic imperatives."

For its third quarter, IBM said revenue from strategic imperatives grew 11% over the trailing 12 months to $34.9 billion and now represents 45% of IBM's total revenue. That keeps IBM on pace to reach its objective of $40 billion in strategic imperatives revenue in 2018.

Revenue from IBM cloud computing services grew 20% in the third quarter and reached $15.8 billion over the trailing 12 months, up 25%. Cloud now represents 20% of total IBM revenue.


IBD'S TAKE: The struggle facing IBM is apparent in weak stock performance — trading below the 200-day moving average, which can be a negative sign. To get a broader idea on top tech stocks, check out IBD's Tech Leaders feature.


Drexel Hamilton analyst Brian White said the third-quarter performance and 2017 outlook was solid.

"We continue to believe IBM will emerge from this transition a much stronger IT organization," White wrote in a research note to clients.

IBM maintained its full-year expectations for operating earnings of at least $13.80 a share.

During the quarter, revenue from analytics increased 5% from the year-ago period. Revenues from mobile rose 7% and revenue from security increased 51%.

Three months ago, IBM reported second-quarter earnings that missed on revenue but beat on the bottom line.

IBM ended the quarter with $11.5 billion in cash on hand.

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