International Business Machines posted a decline that was bigger than had been expected for revenue missing for the first time in the past five quarters because of weaker demand in IT services, a sign the turnaround at the company might take longer than was first expected.
Shares at IBM, who has seen 20 straight quarters of revenue declines, tumbled by 4.7% in late after the bell trading Tuesday. At its current level of $162, the stock will easily erase more than its 2.5% gain thus far in 2017.
With the demand for its software and legacy hardware businesses stagnating, Big Blue has been moving towards services that are cloud-based, data analytics, artificial intelligence and security software like Watson its supercomputer that once played and won against human contestants on Jeopardy the television quiz show.
These strategies imperatives that were spread throughout the various businesses of IBM continued with their growth during the first three months of 2017, but did not offset the weakness in the core operations of the company, especially in technology services and its cloud platforms business.
IBM was not able to close several large deals for that business, which is the largest it has, while a few of its larger clients moved their operations to in-house, said CFO Martin Schroeter during the company’s conference call with analysts.
Due to that, IBM’s decline in overall revenue increased to over 2.8% during the first three months of 2017 from just 1.3% during the fourth quarter of 2016 and missed expectations of analysts of a drop of 1.6%.
Revenue at IBM reached $181.5 billion during the quarter, but missed the $18.38 billion estimated by analysts. Revenue in its tech services and its cloud platform business fell to $8.2 billion a drop of 2.5%. The business represents close to 45% of the company’s overall revenue.
IBM said that its gross profit margin had dropped in each of its five reporting units. In all, the adjusted gross margin was 44.5% which missed estimates by analysts of 47.6%.
However, its revenue growth in strategic imperatives accelerated to over 12% during the three months ending March 31 from 11% during the fourth quarter.
Revenue from its strategic imperatives reached $7.8 billion which accounted for more than 42% of its overall revenue which was up from 37% of overall revenue during the same quarter one year ago.
Net income at IBM feel 13% to end the quarter at $1.75 billion, but excluding certain items was at $2.38 a share which beat estimates of $2.35 by analysts.
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