IBM reports mixed results for last quarter ahead of Kyndryl unit spin-off

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IBM is looking to become a growth story again.

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IBM

the stock is down as investors digest its latest earnings report ahead of its Kyndryl-run IT services arm in early November.

Third quarter results were broadly in line with Street’s estimates, although revenues were weak. IBM (ticker: IBM) reported revenue of $ 17.6 billion, up 0.3%, slightly below Wall Street analysts’ consensus forecast of $ 17.8 billion. Adjusted for currency effects and divested activities, sales were up 0.2%.

In after-hours trading, the stock lost 4.2% to $ 136

IBM said revenue was up 2.5% excluding Kyndryl, or 1.9% more after adjusting for currencies and divested businesses. Profits on a non-GAAP basis were $ 2.52 per share, two cents above the consensus call. The company did not provide further details on how the quarter would have been adjusted for the Kyndryl transaction, which will close on November 3.

Part of the logic behind the split is to turn IBM back into a growth story. As part of this process, the company is making a big effort to develop its cloud business, and on this point, it is showing progress. The company said total cloud revenue over the past 12 months was $ 27.8 billion, up 14%.

IBM said last quarter revenue for its Global Business Services unit was $ 4.4 billion, up 11.6%, and slightly above Street’s consensus of $ 4.3 billion , driven by 17% growth in consulting and 19% in business process outsourcing operations.

Cloud and cognitive software revenue rose to $ 5.7 billion, up 2.5%, and slightly below the consensus call of $ 5.8 billion. This includes 10% growth in “cloud and platforms”, stable revenues from “cognitive apps” and a 9% drop in transaction processing revenues. Red Hat business revenue increased 17%.

Global technology services revenue, most of which will be reallocated to Kyndryl in the future, was $ 6.2 billion, down 4.8%. CFO Jim Kavanaugh noted in an interview with Barron that Kyndryl’s revenues will consist primarily of approximately 75% of the current revenues of Global Technology Services.

Systems revenue, including hardware, was $ 1.1 billion, down 11.9%. Global Financing segment revenue was $ 220 million, down 19.2%.

Kavanaugh said the slight quarterly revenue shortfall from Street’s expectations reflects sluggishness in the systems industry, where the company will launch a new mainframe product cycle in the first half of 2022, as well as reluctance from customers before the launch. the company’s recent disclosure of details about the Kyndryl spin-off. He noted that IBM expects growth in what will be a newly constructed infrastructure reporting segment – it will include mainframes – in 2022.

“With the separation of Kyndryl early next month, IBM takes another step forward in our evolution as a platform-centric hybrid cloud and AI company,” said IBM President and CEO, Arvind Krishna, in a statement. “We continue to make progress in our software and consulting businesses, which represent our highest growth opportunities. With our increased focus and agility to better serve our customers, we are confident in achieving our mid-term goals of mid-single-digit revenue growth and strong free cash flow generation. “

In Wednesday’s regular session, IBM shares lost a few cents to $ 141.94.

Write to Eric J. Savitz at eric.savitz@barrons.com


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