IBM International Business Machines Corp

By Rachael King 

International Business Machines Corp. sales continued to decline in its most recent quarter, even as it made gains in strategic areas, such as cloud computing and data analytics.

The Armonk, N.Y., company on Monday reported that its revenue for the second quarter dropped 2.8% to $20.24 billion, as its established businesses continue lose ground to cloud computing services delivered over the internet. The company has posted revenue declines for 17 straight quarters.

Nonetheless, revenue was better than analysts' expectation of $20.03 billion, according to Thomson Reuters. The bottom line also fell compared with one year earlier, but exceeded expectations. IBM shares climbed 2.6% to $164 after hours.

The company reaffirmed its guidance of full-year earnings per share of $13.50. Analysts had expressed concern that the forecast might decline due to economic uncertainty surrounding the U.K.'s decision in June to leave the European Union.

"Brexit didn't help, but from everything we've seen we haven't changed our view," Martin Schroeter, IBM's chief financial officer, said in an interview.

The computing giant said earnings fell to $2.5 billion, or $2.61 a share, from $3.45 billion, or $3.50 a share, one year earlier.

In January, IBM had lowered guidance for the year and Mr. Schroeter said earnings were in line with that projection. Still, the most recent quarter marked the eighth quarter of lower core earnings per share in the past 10 quarters, reflecting IBM's struggle to build new businesses as older ones shrink. Before 2014, the company hadn't posted a profit decline since 2003.

IBM said its revenue from cloud services grew 30% to $3.4 billion during the quarter. Those services include SoftLayer, which sells access to computing capacity over the internet, and Bluemix, which, among other capabilities, sells access to software over the web. The cloud business during the quarter added new customers, including Pratt & Whitney, Halliburton Co. and Kaiser Permanente.

The company also is starting to see new revenue from the billions of dollars it spent on acquisitions in the past year. IBM closed acquisitions of 11 companies in areas such as data analytics, cloud and security. Those deals include Truven Health Analytics Inc., cloud-based video services firm Ustream Inc. and Weather Co.

While the company has seen pockets of growth in what it calls its "strategic imperatives -- cloud computing, artificial intelligence, data analytics, mobile, social and security -- some analysts said they won't be convinced of the company's successful transition from waning older businesses until they see revenue growth across the board.

"Despite the fact that revenues for these strategic imperatives over the past four to five years have really been growing well, and have been becoming a bigger part of the mix, the growth rate of the company in terms of revenue has actually been flat to down," Toni Sacconaghi, an analyst at Sanford C. Bernstein & Co. said in an interview before Monday's earnings disclosure.

IBM's path to new businesses has been challenging. The laid off tens of thousands of employees over the past year, even as it has hired tens of thousands of new employees in these new businesses. IBM says that its strategic imperative businesses grew by 12% to $8.3 billion for the quarter. These businesses in the past year logged revenue of $30.7 billion, making up 38% of the top line.

IBM shares have dropped by 17% since Chief Executive Virginia Rometty took over in January 2012. The S&P 500 index rose 70% during the same period.

Write to Rachael King at rachael.king@wsj.com

(END) Dow Jones Newswires

July 19, 2016 02:48 ET (06:48 GMT)

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