IBM Revenue Declines Again -- 2nd Update
January 19 2017 - 7:45PM
Dow Jones News
By Ted Greenwald
International Business Machines Corp. recorded its 19th
consecutive quarter of declining revenue, as it continued to try to
offset declines in older businesses with sales in newer ones that
are growing rapidly.
Fourth-quarter revenue at the Armonk, N.Y., computing giant slid
1% from the year-earlier period to $21.8 billion. Net profit edged
up nearly 1% to $4.5 billion, though that still left profit 11%
lower for the full year, at $11.9 billion.
Chief Financial Officer Martin Schroeter emphasized that annual
revenue in IBM's newer, faster-growing businesses rose 14% and now
makes up 41% of total sales -- ahead of the company's earlier
forecast that nascent businesses would contribute 40% by 2018.
"We feel pretty good about how we're entering 2017 stronger than
we entered 2016," he said in an interview.
Like other older companies that sell information technology to
corporate buyers, IBM is struggling to cope with the move to cloud
computing. That trend shifts customer spending from vendors who
equip private corporate facilities to those who offer subscriptions
to services delivered through the internet, such as Amazon.com
Inc.'s Amazon Web Services for computing power and Salesforce.com
Inc. for business apps.
Big Blue's chief executive, Ginni Rometty, has responded by
jettisoning low-growth, low-margin businesses and revamping its
remaining core assets to emphasize ones that she calls strategic
imperatives. Foremost among these are IBM's own cloud-computing
operations and Watson, its artificial-intelligence platform.
The transition has yet to rekindle growth for the company
overall, however. IBM's full-year revenue has declined for five
years, its pretax income has fallen for four, and its non-adjusted
earnings per share has slid for three.
IBM has said its strategic-imperative businesses have been
growing at double-digit percentages, while older, slower businesses
have been declining annually by percentages in the low teens,
according to analysts.
Investors recently have shown optimism that IBM's transition is
on track. The share price suffered in the years between 2013 and
2016, but during the past year rebounded more than 20%. Its share
price rose to 11.8 times expected earnings per share from 9.1
during the period, exceeding that of Hewlett Packard Enterprise Co.
and approaching that of Oracle Corp., two other big, mature IT
companies.
IBM "took their medicine upfront by divesting of the right
things and investing in the right things," said Patrick Moorhead,
an analyst with Moor Insights & Strategy.
Still, IBM shares slid about 2% in after-hours trading on
Thursday following the earnings release, after ending roughly flat
in 4 p.m. trading on the New York Stock Exchange. That occurred
even though IBM's adjusted quarterly earnings of $5.01 per share
exceeded its own and analysts' forecasts.
Some analysts expect the contribution of strategic initiatives
to total revenue to reach 50% in the second half of this year,
which would mark a milestone in the turnaround Ms. Rometty has
sought since taking her post in late 2012.
IBM has been working feverishly to build these new businesses,
especially Watson, which offers of commands and functions that
software developers can use to stitch artificial intelligence into
their programs.
Watson, led the way to the current era of
artificial-intelligence in which it is a focus of many big tech
companies. IBM has built out its platform to include AI as a
service, tools for build-it-yourself intelligent apps, and
specialized AI applications in industries including health care,
finance, insurance, and automotive.
IBM doesn't disclose revenue from Watson-branded operations, but
Ms. Rometty has forecast that the multifaceted
artificial-intelligence technology would have 1 billion users by
the end of 2017.
Even if revenue from new businesses overtakes that from the old,
core revenue, profit growth might remain elusive. Some analysts are
concerned that the new businesses are cannibalizing older
businesses, accelerating their decline.
Credit Suisse analysts in a recent research note wrote, "The
concern we have is the faster [revenue from strategic initiatives]
grows, the quicker Core declines."
Write to Ted Greenwald at Ted.Greenwald@wsj.com
(END) Dow Jones Newswires
January 19, 2017 19:30 ET (00:30 GMT)
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