IBM Hit by Rare Sales Decline in Software Units, Posts Disappointing Quarterly Revenue

IBM is preparing to split itself into two public companies.

By Reuters | Updated: 23 January 2021 10:45 IST

IBM Hit by Rare Sales Decline in Software Units, Posts Disappointing Quarterly Revenue

IBM is preparing to split itself into two public companies

Highlights

IBM clients shied away from longer-term deals due to COVID-19
Revenue from IBM's cloud-computing business rose 10 percent
Sales from IBM cloud and cognitive declined 4.5 percent

IBM missed Wall Street estimates for quarterly revenue on Thursday, hurt by a rare sales decline in its software unit as clients shied away from longer-term deals due to pandemic-induced economic uncertainty.

The 109-year-old firm is preparing to split itself into two public companies and the namesake firm will focus on the so-called hybrid cloud, where companies use a combination of their own datacenters and leased resources to manage and process data.

Revenue from its cloud-computing business rose 10 percent to a record $7.5 billion (roughly Rs. 54,750 crores) in the fourth quarter, with IBM saying it is confident of returning to sales growth in 2021 and expected revenue to grow in mid-single digits after the separation.

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That was not enough to convince investors, however, as the company's shares dropped 6.7 percent to $122.98 (roughly Rs. 9,000) in extended trading after IBM's fourth consecutive quarter of sales decline.

"Our performance reflects the fact that our clients continue to deal with the effects of the pandemic and broader uncertainty of the macro environment," said Chief Executive Officer Arvind Krishna, who took helm last April.

"This puts additional pressure on larger software transactions this quarter and project delays in some services engagements."

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Sales from cloud and cognitive, which houses IBM's software offerings and its biggest unit, declined 4.5 percent to $6.8 billion (roughly Rs. 49,640 crores) after two years of growth.

Still, Chief Financial Officer James Kavanaugh told Reuters an accelerated move to cloud by businesses, a sales rebound in the global business services unit and a weaker dollar make the company confident of returning to revenue growth this year.

Total revenue fell 6.5 percent to $20.37 billion (roughly Rs. 1,48,700 crores), missing analysts' average estimate of $20.67 billion (roughly Rs. 1,50,800 crores), according to IBES data from Refinitiv.

Excluding items, IBM earned $2.07 (roughly Rs. 150) per share, above estimates of $1.79 (roughly Rs. 130).

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