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IBM Reports Mixed Results: Sales Down, Margins Up
by Daniel Newman | April 19, 2019

IBM earnings report showed mixed results on Tuesday, missing estimates for first-quarter revenue with a dip in sales from cloud and cognitive software.

A stronger U.S. dollar cut down revenue by more than four percentage points, and mainframe sales tumbled as the product cycle ran its course. There was some positive news on Tuesday overall, according to Motley Fool:

“Profitably improved in most of IBM’s segments, and both gross and operating margins edged up. Earnings per share declined on a year-over-year basis, but a higher tax rate was to blame”.

This marks the 3rd consecutive quarter revenue decline year on year. Previously IBM had a streak of 22 consecutive quarters of revenue declines that finished in 2017. IBM reiterated its guidance of at least $13.90 in earnings per share, excluding some things, for all of 2019. Analysts had been looking for $13.91 in earnings per share, excluding some things, for the complete year.

Here are the major numbers, reported by CNBC:

Earnings: $2.25 per share, excluding some things, averaging $2.22 per share as anticipated by analysts. Earnings: $18.18 billion, vs. $18.46 billion as anticipated by analysts/ IBM’s revenue was down almost 5 percent from the year-ago quarter.

Analyst Take: IBM’s quarter results did show a revenue decline, but once again the street is being harsh on these results as the misses were small and earnings actually beat the analyst estimates. While investors can be fickle, profit still rules in business and IBM showed greater than expected margins leading to the higher earnings. IBM has some real winners in their portfolio, especially in their mainframe, server and LinuxONE product lines, and they are showing some potential in expanding their portfolio to the hyperscalers that could immediately increase the footprint of IBM. While this is a wait and see, the other big wait and see will be the immediate impact of the Red Hat acquisition. I believe investors are wary due to the high price tag, however, the bet makes sense for IBM with their commitment to Linux and cloud native app development. The next quarter(s) will be important to watch closely, but as long as their profits and earnings stay ahead of estimates, I’m willing to be less critical of their revenues. ~Daniel Newman

Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice. 

Daniel Newman
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