IBM Disappoints As Q1 Profit Slips

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Big Blue grows revenues, but shares in the firm fall after first quarter margins miss Wall Street expectations

IBM has posted mixed financial results for its first quarter, but Wall Street was not impressed after the tech giant missed its margin expectations.

This was despite the fact Big Blue did manage to grow revenues in the quarter, but profit dipped slightly as the tech giant’s struggle to reinvent itself as a cloud, analytics and AI specialist continues to take time.

In January IBM had posted its first rise in quarterly revenues for over five years, but that good news was blunted by another quarterly net loss and a warning of a tough year ahead for the firm.

IBM
IBM CEO Rometty

Q1 results

For the last six years IBM chairman, president and chief executive officer Ginni Rometty has been carrying out a shrinking “by design” program, as part of IBM’s refocusing on the cloud, mobile, analytics and cybersecurity, as hardware earnings continue to fall.

And now for the three months ending 31 March, IBM beat investor expectations for both its profits and revenue. It posted a net profit of $1.68bn (£1.2bn), down from $1.75bn (£1.23bn) in the same year-ago period.

Revenues however did rise to $19bn (£13.4bn) from $18.1bn (£12.8bn) a year earlier.

However, posted profit margins that fell short of Wall Street expectations after its adjusted gross profit margin fell to 43.7 percent from 44.5 percent a year earlier. Reuters reported that IBM shares fell 6 percent in after-hours trade as a result of this.

IBM blamed the decline in gross margin mostly because of “significant” one-time charges. Indeed, CFO James Kavanaugh pointed the finger of blame at the fact that the company cut costs and took a $610m (£429m) charge in the first quarter.

“In the first quarter we maintained momentum in our business, with reported revenue growth in total and across our major segments,” said Rometty. “These results reinforce that our clients value our innovative technologies, our industry expertise and our commitment and actions for the responsible stewardship of their privacy and data. This is also reflected in our leadership positions in enterprise cloud, AI and security.”

Divisional performance

Drilling down into IBM’s divisional performance, its Cognitive Solutions unit (which includes solutions software and transaction processing software) posted revenues of $4.3bn (£3bn), up 6 percent thanks to software, including security, analytics, industry platforms, and transaction processing software.

Big Blue’s Global Business Services unit meanwhile saw revenues of $4.2bn (£2.9bn), up 4 percent; and the Technology Services & Cloud Platforms division posted revenues of $8.6bn (£6bn), up 5 percent.

Finally, IBM’s Systems division (which includes systems hardware and operating systems software) posted revenues of $1.5bn (£1bn), up 8 percent driven by growth in IBM Z and Power.

Last month, a report accused IBM of allegedly flouting age discrimination laws in the United States by pushing out Big Blue staffers aged 40 and upwards, and replacing them with younger, and cheaper employees.

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Author: Tom Jowitt
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