IBM's 2Q revenue was -3% y/y in constant currency (-4.7% in USD) to $19.29B, below our and consensus expectations of -3.5%/-3.9% growth (revenue of $19.53B/$19.46B). The share of the new growth sector also formed 43 per cent of IBM's total revenue of $19.3 billion in the second quarter.
One way the company plans to improve its sales and profitability is through its recently introduced IBM Z mainframe which will be able to encrypt all data that is processed on it. Profit fell 6.9% from a year earlier.
The company notes that it's the only cloud provider in Australia to offer a full set of IRAP-certified solutions for bare metal, private and public cloud services (IRAP is the country's certification for cloud services providers that want to work with the Australian government).
Ginni Rometty, IBM chair, president and CEO, says: "In the second quarter, we strengthened our position as the enterprise cloud leader and added more of the world's leading companies to the IBM Cloud". Cloud revenue, including cloud delivered as a service, for the quarter was $3.9 billion, up 15 percent from past year. Analysts now estimate earnings of $13.68 per share. In contrast, the S&P 500's has gained almost 9% during the same period.
Declines in revenue were also seen across Cognitive Solutions, Global business Services, Systems and Global Financing. Its revamp had seemed to gain momentum past year, with profit rising in the fourth quarter. What's more, the ramp is less challenging given a lower 2Q tax rate which takes down back half seasonality, a potentially lower structural tax rate in 2H17 due to weaker United States mix, and currency becoming a tailwind by 4Q. Analysts had expected guidance of $13.68 per share.
Among the sore spots of the report, aside from the revenue miss, was a slowdown in what's called the "strategic imperatives", parts of the business that chief executive Ginny Rometty has pointed to as IBM's future, including cloud computing.
The tech giant reported its second-quarter earnings on Tuesday and said its revenue declined roughly 5% since Q2 2016. This, we believe, shows the true organic growth rate of the business, as there were minimal acquisition impacts this quarter. Gross margins continued to narrow across all business units, though by less than in the first quarter.
Mobile-based revenues jumped 27%, while security segment revenues increased by 4%. The stock is down about 8 percent on the year. Warren Buffett's Berkshire Hathaway Inc. sold about a third of its investment in IBM during the first half of this year.
However there are no signs she is planning to move on.