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IBM's Earnings Report Shows Big Blue Beating Q4 Estimates, But Quarterly Revenue Dropping By 1.3 Percent

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IBM's fourth quarter report showed that its earnings have beaten analyst expectations. Forecasted revenue was $21.64 billion and the company eclipsed that figure by posting $21.77 billion earnings.

All is not well, however, as IBM's report indicated how the company has so far failed to stem a steady decline in overall profitability year-on-year.

On IBM's Revenue Decline

The 2016 Q4 performance, for example, may have exceeded estimates but still represented a 1.3 percent decline. IBM's revenue has been plummeting for 19 consecutive quarters.

The company has also ended 2016 with a net income of $11.9 billion. This pales in comparison to the $13.4 billion earnings posted in 2015, constituting a significant 11 percent drop.

Earnings per share have been diluted on account of the diminished revenue: $12.38, down from $13.42.

The decline is largely attributed to what observers call as legacy businesses. These include services and software, which Big Blue is increasingly divesting itself of. These have been experiencing decline in profitability, explaining IBM's shift toward its new businesses called as strategic imperatives.

Cloud Computing And Other Business Bright Spots

IBM's strategic imperatives include cloud and mobile computing, artificial intelligence, analytics and security. These businesses are growing at a staggering pace. Cloud computing alone was able to post an impressive 33 percent expansion across all of IBM's segments amassing $9.3 billion revenue in the process.

Cognitive solutions, which include AI for business, also saw an uptick in sales, generating $5.3 billion.

To reinforce this narrative, IBM has immediately cited its initiatives to leverage products and solutions in this category. For instance, the company cited its acquisition of 15 companies and the increased R&D spending to beef up its capabilities in the area of strategic imperatives and these are clearly paying off.

"In 2016, our strategic imperatives grew to represent more than 40 percent of our total revenue and we have established ourselves as the industry's leading cognitive solutions and cloud platform company," Ginni Rometty, IBM chairman, president and chief executive officer, said in an official statement. "IBM Watson is the world's leading AI platform for business, and emerging solutions such as IBM Blockchain are enabling new levels of trust in transactions of every kind.

IBM's Portfolio Realignment

IBM's scramble toward strategic imperatives makes sense because it has been offsetting its losses in other segments. Rometty has been leading an aggressive realignment charge but it could prove challenging as it entails the reorganization of a company with 380,000 employees.

The strategy, however, has also been adopted by IBM's rivals such as Oracle and Microsoft.

Meanwhile the release of the Q4 report caused a 2.9 percent uptick to IBM's shares Jan. 19 in extended trading.

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