IBM Quarterly Results Reveal Growth Challenge

IBM’s latest financials revealed another disappointment for Wall Street investors, after Big Blue missed nearly all of its targets.

The IT veteran is still profitable, but has been shrinking in recent years as it struggles to reinvent itself as a cloud, analytics, blockchain and AI specialist.

IBM’s continued attempt to change itself was evidenced in August, when it filed a patent with the US Patent Office that showed a delivery system for coffee, using airborne drones and artificial intelligence software.

Growth challenge

But its third quarter financials showed that while the firm is still making a profit, it is struggling to achieve growth.

For the three months ending 30 September, IBM posted a net profit of $2.7bn (£2.05bn) from $2.7bn (£2.07bn) a year earlier.

Revenues meanwhile missed analysts’ average estimate of $19.1bn and was down at $18.7bn (£14.3bn), two percent down from $19.1bn (£14.6bn) a year ago.

Matters were reportedly not helped by slowing software sales and stuttering demand for mainframe servers.

But IBM’s management did try to put a positive spin on the results.

“IBM’s progress and momentum this year in the emerging, high-value segments of the IT industry are driven by our innovative technology, deep industry expertise and commitment to trust and security,” said Ginni Rometty, IBM chairman, president and chief executive officer.

“Our leadership in the technology and services that deliver hybrid cloud, AI, blockchain, analytics and security has helped drive our overall performance, and is helping our clients unleash the full business value of these innovations.”

Divisional performance

But digging down in IBM’s divisions, it is clear the firm had a tough quarter.

Revenues at IBM’s ‘Systems’ division, its traditional business that includes mainframe servers and data storage systems, saw a 1 percent rise (compared to 25 percent growth the previous quarter) with revenues of just $1.7bn, thanks to growth in its Power and IBM Z machines.

IBM’s cognitive software business, which includes its artificial intelligence platform Watson, analytics and cybersecurity services, had sales of $4.15bn, down 6 percent from a year earlier.

Global Business Services (includes consulting, application management and global process services) saw revenues climb 1 percent to $4.1bn, but the Technology Services & Cloud Platforms division saw a 2 percent decline in revenues to $8.3bn.

Revenues at the Global Financing division fell 9 percent to $388m.

Reuters reported IBM CFO James Kavanaugh as saying that seasonal factors affecting demand for software such as transaction processing platforms which hurt revenue, but that the firm has a good pipeline in transaction processing software as it enters the fourth quarter.

For the last six years IBM chairman, president and chief executive officer Ginni Rometty has been carrying out a shrinking “by design” program, as part of IBM’s refocusing on the cloud, mobile, analytics and cybersecurity, as hardware earnings continue to fall.

Earlier this year a report accused IBM of allegedly flouting age discrimination laws in the United States by pushing out Big Blue staffers aged 40 and upwards, and replacing them with younger, and cheaper employees.

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