IBM Results Decline Again But Top Expectations

By Rachael King 

Even as International Business Machines Corp. makes some gains in new strategic areas such as cloud computing and artificial intelligence, its total sales continue to decline.

The Armonk, N.Y., company reported Monday that its revenue for the second quarter dropped 2.8% to $20.24 billion, as its products have become increasingly under threat by the move to computing services delivered over the internet. The company has now posted revenue declines for 17 straight quarters. Analysts had expected revenue of $20.03 billion, according to Thomson Reuters.

The computing giant said earnings fell to $2.5 billion, or $2.61 a share, from $3.45 billion, or $3.50 a share, a year earlier. Excluding charges, they totaled $2.95. Analysts had expected earnings of $2.89 a share.

During the second quarter, IBM signed cloud agreements with companies such as Pratt & Whitney, Halliburton Co. and Kaiser Permanente. The company said its revenue from cloud services was $11.6 billion over the past 12 months. Its cloud services include SoftLayer for renting hardware capacity over the Internet and its Bluemix services which, among other capabilities, let companies rent software that can be accessed through a Web browser.

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

While sales may be growing in pockets, some analysts said they won't be convinced that the reinvention is working until they see revenue growth across the board.

"Despite the fact that revenue for these strategic imperatives over the past 4-5 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," said Toni Sacconaghi, an analyst at Sanford C. Bernstein & Co., ahead of the report.

IBM's path to new businesses such as cloud, artificial intelligence, data analytics, mobile, social and security has been challenging. As overall revenue shrinks faster than the new businesses grow, the company has laid off tens of thousands of employees over the past year, even as it has hired thousands of new employees in these new businesses. IBM calls these new businesses "strategic imperatives," and said revenue from these businesses grew 12% to $8.3 billion for the quarter.

The company reaffirmed its guidance for earnings of about $13.50 for the year.

IBM shares bounced in and out of positive territory after hours. The stocks has dropped by 17% since Ms. Rometty took over in January 2012; the S&P 500 index is up 70% during the same period.

Write to Rachael King at [e-mail]

(END) Dow Jones Newswires

July 18, 2016 16:34 ET (20:34 GMT)

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