After more than five years of shrinking, International Business Machines Corp (IBM) says it will finally show investors it can grow again.
Some of that boost will actually come from one of its legacy hardware businesses, rather than the new services such as cloud and data analytics on which the company has been pinning its prospects for growth.
Fourth-quarter revenue is expected to be US$22 billion to US$22.1 billion, which will represent as much as a 1.5 percent bump from the same period last year. It also tops analysts’ forecast of US$21.8 billion.
In the last quarter of the year — historically IBM’s strongest — sales will improve by as much as US$2.9 billion sequentially, boosted in part by sales of its new mainframe server, IBM chief financial officer Martin Schroeter said on Tuesday on a call to discuss earnings.
If IBM achieves its outlook, it will end a 22-quarter streak of shrinking sales. During the third quarter, IBM came the closest to stemming that decline since the same period last year.
Getting back to growth on the top line has been a major goal for IBM chief executive Ginny Rometty and a milestone investors are looking for as proof that the company can finally climb out of its rut.
Total revenue in the third quarter was US$19.15 billion, little changed from a year earlier, but beating the average analyst estimate of US$18.6 billion.
Growth came from hardware, as well as the group that houses much of its software products.
Cognitive solutions, a segment that includes Watson analytics and other newer products for IBM, grew 3.9 percent, after a decline during the prior period.
The systems unit also reported a gain, helped by improved sales in data storage products and the new mainframe server, which became available late in the third quarter, Schroeter said in an interview.
“Cognitive solutions has attracted a lot of our investment, and when we look at underlying performance, it captures and reflects a lot of the new strategic imperative areas we’re going into,” Schroeter said.
These “strategic imperatives” include analytics, security and Watson-branded products and are a key indicator for IBM’s future success, he said.
“We saw pretty broad-based growth across all cognitive solutions elements,” he said.
Big Blue had a rough first half, missing revenue estimates for the first two quarters.
The stock is down more than 11 percent this year, while the broader technology sector has been soaring to records.
IBM’s status as a bellwether stock that paid high dividends had kept many investors hopeful that the company could turn things around, but the multi-year revenue declines have eroded confidence.
Warren Buffett, once IBM’s most vocal champion and largest shareholder through his Berkshire Hathaway Inc, soured on the company and sold about a third of Berkshire’s investment in IBM earlier this year.
Under Rometty, Armonk, New York-based IBM has been working to add revenue in cloud-based software and services.
These newer operations now make up more than 40 percent of IBM’s total sales.
However, legacy businesses continue to deteriorate. Rometty has also invested more in artificial intelligence technology under the Watson brand, peddling the suite of products as IBM’s future and the driver for long-term growth, but the company does not break out sales for Watson services and folds the group under the cognitive solutions segment — implying Watson is not yet big enough to be material.
Operating profit, excluding some items, was US$3.30 a share in the quarter ended Sept. 30, compared with the average analyst estimate of US$3.28.
IBM improved its gross margins from the previous quarter, in line with Schroeter’s forecast.
That is in part because IBM increased its software sales, which is highly profitable, and in part because the company is also growing its cloud business, which has better margins the bigger it gets, he said.
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