IBM Corp’s one-quarter growth streak is already in doubt.
Shares of the company fell on Tuesday in extended trading after it reported narrower profit margins and no revenue growth, excluding help from a weak US dollar. That cast a shadow over an effort to sell more-profitable cloud-based software to revive growth after five years of revenue declines.
Though heading in the right direction, IBM’s rebirth has yet to materialize, Daniel Ives, an analyst with GBH Insights LLC, said in a note to clients, adding: “Patience is wearing thin on the Street around the IBM turnaround story, which continues to be elusive..
First-quarter revenue came in at US$19.1 billion, beating the average analyst estimate of US$18.8 billion. That is 5 percent higher than a year earlier, but flat without currency fluctuations.
Margins slipped 0.6 percentage points to 43.2 percent.
The stock dropped as much as 6.1 percent in extended trading after closing at US$160.91 in New York.
Growth in the cloud business was 14 percent, lower than last year’s average of 24 percent, Bloomberg Intelligence analyst Anurag Rana said, adding that “puts a question mark on IBM’s hybrid cloud strategy.”
During a conference call, Kavanaugh pushed back on questions from analysts about margins and whether revenue can keep expanding.
He pointed to growth across the company’s business lines, and said execution problems in its consulting business and computer-storage unit were partly to blame for the quarter’s challenges.
Kavanaugh described the overall picture as positive and said chief executive Ginni Rometty’s goal of getting about half of sales, or US$40 billion, from newer businesses was ahead of schedule.
“This is a good start to the year,” Kavanaugh said. “We’re well on pace to deliver that US$40 billion earlier than 2018.”
Those new businesses represented 47 percent of revenue over the last 12 months, he said.
Analysts had expected IBM to lift its full-year profit forecast.
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